As a business, you might be producing some products or providing some services. You would certainly be charging for these products and services. But are you sure you have set the right prices for your products or services?
Most business owners are either confused or just don’t have the right idea of setting prices for products or services. They either underprice or overprice their products or services. This, in turn, affects sales and, thus, profits.
So, how to avoid certain pricing mistakes to ensure you have set the right price to get the most out of your products and services sold?
Mistake#1: Keeping the Same Price for Far Too Long
Several businesses maintain the same prices for products and services for far too long. They fear that if they change the prices of their products and services, their customers will start looking elsewhere.
How to Avoid:
You can avoid this mistake by habituating your customers with smaller price changes now and then. This will ensure you have the opportunity to change prices based on the overall costs of production resources, demand, and market changes. This will help you generate a good profit margin for your business.
And don’t worry! Your loyal customers won’t leave you due to smaller price changes. You can also implement certain methods to keep your loyal customers with your business despite price changes. For example, you can provide your loyal customers with an option to pay the price in instalments. You will still be making sales, getting the required price, and keeping your customer base.
Mistake#2: Considering Only the Costs Not the Value
As mentioned above, businesses tend to either underprice or overprice their products or services. This happens because businesses only consider the costs rather than the value of the products and services. While setting the price, you might only consider how much costs it took to produce the product or provide a service. However, this is not the right way to set the prices.
How to Avoid:
To avoid this pricing mistake, you need to find the right balance between costs and value. It would help if you considered the customer’s perception of the value of your products and services. If your customer considers your products and services of high value, they will be more willing to pay a higher price. Also, your customers will be more inclined to continue despite the price fluctuations.
This will increase your sales and bring a healthy profit to your business.
Mistake#3: Neglecting Your Competition before Increasing Prices
Price wars between business competitors have drastically affected the market profit and share of the industry. Hence, you can’t afford to neglect your competitors before changing your prices. A slight change in price without understanding your competitor’s position in the market can affect your business profits too.
How to Avoid:
Keep a constant eye on your major industry competitor. Understand their market position. Visit their stand-in store or online store to understand their pricing structure for similar products and services.
If you can’t find the prices on their website, use your industry connections to find the current pricing structure. You need to keep track of the pricing structure of your major industry competitor.
Mistake#4: Considering All Your Products to Be the Same
If your business is producing products or providing services on different categories, considering the same value while pricing them will affect your overall profit margin. Each product or service you provide has a different value and has incurred different production costs. So, you shouldn’t be pricing them the same.
Moreover, even if you have similar products in a category, your customers might put different values on each one of them. Their popularity will be reflected in customer reviews and feedback. This clearly indicates that your products aren’t the same.
How to Avoid:
Start by reviewing your current profit margin. This is especially important if you haven’t done it in a while. Check how much it actually costs to produce a product, down to the last dollar. This will give you the right idea of how much you must price each item to ensure a healthy profit margin.
Sometimes, you will notice your customers have assigned different values to similar products. This will increase their willingness to pay for a higher-value product despite the difference in prices of similar products.
Mistake#5: Inability to Spend Enough Thought and Time in Determining the Prices
Do you hold a last-minute meeting with your team to determine the prices of your products and services? If so, you are making a major mistake. Last-minute price meetings are never efficient because they are not based on data but on hasty decisions. Sometimes the sales team throws in sales anecdotes to influence the prices of products and services.
How to Avoid:
You need to establish specific internal protocols to set the price meetings well before a new product or service is introduced in the market. Price meetings should never be an afterthought.
Here’s how you should set the price of your products and services. Study the production and material costs, selling, and overhead expenses. This will give the exact costs of producing a product. To this cost, you can now add operating costs, profits, and reductions. Divide these costs by overall sales and reductions. This will give you the initial price of the products and services. Now, you must run profit and volume estimates to determine whether this initial price delivers the desired sales and profit.
Wrap it Up
So, there you have it! The 5 pricing mistakes businesses make and how you can avoid them to gain more profits with adequate sales.
To get more guidance on how to set service and product pricing in real-time, get in touch with us at Keystone Executive Coaching. We are a team of professional, experienced, and certified business coaches who have formulated specific programs and training courses for business owners who want to improve different business functions.
