Have you ever watched the game show, The Price is Right? It’s been on TV for a long time. The winner is the contestant who guesses closest to the actual price of an appliance, car, vacation or other item (without going over). Over the years, winning contestants seem to have done their homework. People who guess without doing any homework generally don’t win.
Something similar happens with business. When launching a new business or a new service or product line, how do you know that your price is right? Too high, no one will buy from you. Too low, you’ll be out of money – and business – pretty quickly. You’ve got to do your homework or you could guess wrong.
Getting your price right boils down to three elements: Cost, Competition, and Value
- Cost – Start by figuring out all the costs you need to cover, both direct and indirect. Direct costs are usually the most obvious, like materials and labor. Indirect costs, like rent and marketing, also need to be included in the total cost per service or product. Don’t forget to also recover the cost to replace equipment that wears out every five to ten years.
- Competition – Once you know your costs, check out the competition to get some perspective. Take care not to use competitor prices as your only guide. You don’t know enough about how their situation or profitability. Consider unmet market demand, competitive pricing and customer service when establishing your prices.
- Value – Should your price reflect your superior quality, experience and qualifications? Absolutely! Don’t hesitate to charge more than the competition as long as you can distinguish your service or product from the others. Identify your value to your customers and reflect it in your price structure.
Want to make sure that Your Price is Right? Consider Cost, Competition, and Value. It’s not as simple as covering your costs and checking out competitor’s prices. Reflect your value and what distinguishes you from your competitors in your price while covering your costs and you’ll win the game.