Among the many decisions to make upon going into business for yourself--including what to call your company, where to hold your operations, and whether or not you should hire your friends--one of the most important is pricing your products and services. The price at which you establish yourself on the market will be a big part of that all-important first impression. Here are a few tips to help you price yourself right.
Make of list of area businesses offering similar products and services and record their prices. Also see if anyone is offering the same thing via the Internet--they're your competitors, too. Note the price range and seeming differences among the products. Are the low-end items of noticeably poorer quality? Do the more expensive offerings have attributes that justify the price? Take note of as much as you can, and you'll begin to see where your product should sit among the price range.
Consider offering an introductory discount
Unless you're offering a product or service that has heretofore been unavailable in your market (and doesn't draw a good portion of its business from the Web), then you need to consider a strategy that will take customers away from existing providers and make them yours. Offering an introductory discount is one of the most traditional--and successful--ways for a new business to do this.
You have a wide variety of choices in the type of discount you offer. Many businesses open with a special rate for the first one to six months, letting customers know this is their chance to score savings. It's best to be up-front about when the “real” prices kick in; otherwise customers might resent the hike. If you're concerned about making ends meet while offering an across-the-board discount, try giving out coupons or other special offers. For example, if you have a pet-sitting business, you could offer a free grooming session with a first drop-off. While this will be extra work, it won't interfere with your bottom line like monetary incentives would.
Don't sell yourself too short
While reasonable pricing undoubtedly attracts customers, there are dangers with undercutting them too severely. Refer back to your business plan (and if you don't have one of these, make one, pronto) to see the overall projected cost of running your business. Make your sales estimates conservative and decide on a price range that would allow your business to stay solvent, while word of mouth grows.
Remember, too, that the businesses generating buzz aren't always the ones with rock-bottom prices. If you can offer something that your competitors lack, play this up in your marketing materials and price accordingly. People are usually willing to pay for quality and may even avoid a business if it seems that the prices are too low to offer anything of worth. Decide which businesses among your research materials are the most like yours and chose prices that are in line with theirs.
Choosing the correct prices right out of the gate will save you a lot of headaches later. If you decide later that you priced far too low and radically raise your rates, even your most loyal customers might feel betrayed and move on to the next new guy offering those deep discounts. Yet starting too high might prevent those customers from getting to you in the first place. Finally, keeping an eye on the competitions' prices isn't only important for new businesses. Track them every six months to a year to ensure that you stay competitive.