Tag Archives: competitor pricing

Does your business model support your pricing?

Recently I have had a number of conversations with business owners who are finding it increasingly difficult to maintain a reasonable rate for the service they offer.  They report that more and more contracts are being won or lost on price. Yet others seem to have no problem earning what they are worth.

Sure, we are in pretty tough economic times and price will always play its part in business decisions. In my experience though,  price is rarely the most important factor when it comes to a clients list of requirements. If you find yourself having to discount heavily to win business here are some of the questions you should be asking yourself:

  • Are you attracting the right target market? Can your particular market segment afford the service you offer or do you need to look at new segments?
  • Are you providing value for money? How much value can you add to your client  and what is the net benefit of using your services?
  • Are you communicating the value of the service that you offer? Are you focussing too heavily on the price you charge at the expense of the benefits you are offering?
  • Is price the real reason you are not winning  business or is there something more fundamental, like your service level, holding you back?
  • Do you discount as a matter or policy? Discounting can give a client the impression and you don’t think your services are worth the full price.

It may be worth taking a closer look at your business model before blaming the  fact that you can’t charge what you would like on the economic climate.

How much should you charge?

My introduction to the thorny issue of pricing came very early on in my career. As a graduate trainee I was set the task of adding up a whole set of costs  to establish the base price for hundreds of holidays. The margin was then added and, there you have it, a how-to guide to pricing! Well not quite.

I remember even more vividly what happened next . Our main competitors  published their prices. We spend that day (and night) comparing all our prices and undercutting the same holidays by £5.

Just out of the cotton-wool world of academia this was a real eye-opener for me.

There are many, many pricing strategies and it is a hugely complex subject best approached with an expert. For small and medium businesses though here are a few of the most common pricing approaches:

  • Cost plus pricing – add all the costs associated with the product or service you are selling (not forgetting you margin) to determine your price
  • Competitor based pricing – if your product or service is similar to your competitors check out their pricing structure and set your prices accordingly
  • Market based pricing – determine what your target customers are willing to pay for your product or service and use this as a guide.

In reality most small businesses will use a mix of all the above methods to set their base prices. It is important to have a robust pricing strategy in place, particularly if you plan to employ tactical pricing initiatives such as discounting…then that’s a whole different subject!