Entrepreneur Tool Kit
Staff Contributed – The Entrepreneurship Department
Pricing Perfected
Everyone feels the need to be a price leader. With online shopping impacting the price sensitivity and brand loyalty, entrepreneurs often believe that if their product or service isn’t the cheapest then customers will go elsewhere – and their business will be unsuccessful. This is simply not the case: Did you know that being the cheapest product or service in the market could be devastating your business?
Do the research: Know your customer Part of pricing your product or service is an in-depth understanding of your target audience. Steve Blank has made a significant impact in the role of customer development. Researching his methodologies will significantly help business owners learn about their customers by conducting formal customer development activities.
Know your market
Even if you have the best product or service, selecting an unsuitable pricing model can substantially harm your business. To avoid the common pitfalls, we have outlined three steps and strategies to help you when considering pricing models for your business.
Once you have a clear understanding of your customer, you can begin to develop an understanding of the market you are planning to enter or capitalize on. This is also the case for existing businesses entering new markets or examining their pricing strategies. There are many market research databases and organizations, including the Black Business Initiative, that can assist you with market research.
Know your costs Conducting a thorough analysis of the costs associated with your product or service is a critical step in the pricing process, as some costs are often overlooked. These include: Overhead, value of time, permits, licenses, dues, insurance, legal costs, accounting costs, borrowing costs, taxes, credit card processing fees, IT support, etc.
FINANCING
TRAINING
Know when to adjust prices
ADVICE.
If you have been in business for a while, you may recognize a need or opportunity to raise your prices. While it can seem counterintuitive, remember that your business costs such as rent, materials, travel, etc., will rise with inflation. It is important for your prices to move with your business costs.
Select a strategy: Competition-based pricing Competition-based pricing, also known as competitive pricing or competitor-based pricing, is based solely on the other competitors in the market. This model does not consider the costs of creating or providing the product or service. It is common for businesses where a slight price difference may be the deciding factor for customers. Whether you have a slightly higher or slightly lower price than your competition, competitive pricing is one way to stay competitive and keep your pricing dynamic.
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Cost-plus pricing
To find your nearest CBDC visit www.cbdc.ca or call 1-888-303-2232
A cost-plus pricing strategy focuses on the cost of producing your product or service. It is sometimes called markup pricing. This is where you “markup” your price based on the desired profit. This pricing strategy is common in retail, specifically where a business sells physical products.
The Atlantic Canada Opportunities Agency is pleased to provide financial support to the CBDCs in Atlantic Canada. BLACK to BUSINESS
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Winter 2020
