The Price Is Right is a fun game show, but deciding the right price to charge your customers is no game. You need to charge enough to make a profit, and not so much that customers are driven from your business to the competition.
Figuring out the right price for your product or service boils down to three elements:
Cost – Competition — Value
Pricing your product or service involves knowing all of the costs associated with making it happen. Direct costs are usually easy to identify because they are the most obvious – things like manufacturing materials and contract labor.
Less obvious are the indirect costs, such as overhead and marketing. Determine the total cost per service or product by adding the direct and indirect costs and dividing by project hours, production volume, or other measure. Now you know your cost per “unit”.
Use competitor prices as a benchmark, not your only guide. Knowing your competitors’ prices does not tell you if they are profitable. Seeing if they stay in business at those prices is an indicator but not the whole story.
Does your market have unmet demand? That’s an opportunity to capture more market share through competitive pricing – and great customer service, of course!
Back to that customer service, or whatever your value proposition is. Is your price a little higher because you offer more experience or higher quality? Don’t be deterred from charging more than the competition as long as you can distinguish your product or service from the others.
Should you charge less to gain market share or charge more to highlight your quality? Will you be able to make a profit? Feel confident that you can Price It Right by considering cost, competition, and value.