Pick Your Price
Dear Readers,
On February, one of our readers inquired about competition. This week we will address Pablo’s question regarding pricing. Pablo, who runs a residential renovation company asks “how do you determine the best way to price your services.”
Josh: Pricing is critical no matter what you’re selling. In my opinion, offering the lowest price is not always the best solution for small business. Cost pricing strategies typically work best for commodities and large companies, who have lower operating costs. You really should set the smartest price for your service, based on the unique value you provide.
Pedro: So how can you avoid a lowest cost pricing strategy?
Josh: First, know your own business. What do you provide that customers really like? Is it your accessibility or speed of response? When you know what people value, you can feel confident pricing for it.
Pedro: I agree. The next piece is to do your homework and understand your competition’s pricing structure, who they are targeting and what their value-added services are. Know your ceiling price, which is not necessarily the highest priced product/service in the market but rather the highest price the market can bear. Lastly, get familiar with how elastic or sensitive to fluctuations your price is.
Josh: Pedro, are there some key factors when determining price?
Pedro: The price you pick will certainly define your product and your business’s overall success, so you have to make the right choice early and then keep looking at it as your business evolves. I think there are three important factors to consider:
1. Cost - The simplest rule in establishing a price is that you should charge more than what it costs to make your product or provide your service.
2. Customers – Who are you selling to? Consider whether the customer you are selling to is looking for the best deal or something unique.
3. Competitors – In more competitive markets, you will find it difficult to charge a price much different from others who are selling the same goods as you. Setting prices far above your competitors will only work if what you offer has better features.
Josh: Good advice. From our experience at Lead Bank, we know that many of our services are identical to what other banks provide, like loans and checking accounts. If we priced our services only on the standard features of the products themselves, we’d be vulnerable to lower cost mega banks. Instead we understand it’s the accessibility of our bankers, the speed of our decision making, and our commitment to the community that creates the value of our business for our clients. This drives our pricing strategy. You need to ultimately select a pricing strategy that will ensure your company’s profitability and longevity.
Thanks for your question Pablo! We’d love to hear from you. Please submit your business questions to together@lead.bank
