Mastering Business Pricing
Welcome to True North Bookkeeping! If we haven’t met before, I’m Sara, the founder of True North Bookkeeping. I’m thrilled that you’ve chosen to delve into the world of pricing strategies with us! One of the most common missteps I notice among new entrepreneurs is the failure to strategize their pricing plans effectively. It’s tempting to set your prices as low as possible to make a quick entry into the market, but this approach can be problematic when it’s time to raise your prices. This blog post will help you understand basic pricing strategies and provide tips on how to manage price increases.
Starting with the Right Questions
When it comes to pricing, there are several key questions you need to ask yourself:
- How much does your product or service cost to produce?
- What is your target audience willing and able to pay for your product or service?
- Are there any hidden costs you need to account for, such as sales tax, payment processing, and onboarding fees?
- What do you need to charge to feel like providing your product or service is worth it?
- Does your price take into account the years of experience and education you have?
- Does a subscription model make sense for your business?
Understanding Pricing Strategies
There are several common pricing strategies you can consider for your business.
Cost-Plus Pricing
In a cost-plus pricing model, you simply add a markup to the cost of producing your product or service. This method works well for physical products where you need to cover your cost of goods sold. However, this strategy may not fully account for the value you add in a service-based business, and your markup could potentially price your product out of your customers’ range.
Hourly Pricing
With hourly pricing, you charge your customers based on your hourly rate. This method is ideal for service-based businesses where you need to account for the total hours spent on a project. However, determining your hourly rate can be challenging as you need to factor in both your fixed and hourly costs. If you can complete projects quickly, you may need to raise your hourly rate to ensure fair compensation.
Project-Based Pricing
Under project-based pricing, you provide a quote for a project based on the scope of work and project requirements. This method is suitable for service-based businesses that need to account for the full scope of a unique project. However, if you underestimate the scope of work, you could potentially make a loss on a project. Additionally, this pricing method can be more time-consuming as it is not a one-size-fits-all approach.
Competitive Pricing
Competitive pricing involves setting your prices based on your competitors’ prices. This method works well if your business sells similar products that can be easily compared to your competitors’ products. However, you’ll need to do extensive research to ensure your products or services are of equal quality to your competitors’. If you have costs that your competitor doesn’t, this pricing method could result in a lower profit margin.
Managing Price Increases
When it comes to raising prices, communication is key. Inform your customers about the price increase well in advance to help them adjust their expectations. Increase your marketing efforts to highlight the additional value your clients will receive with the increased price. Also, consider allowing current clients to maintain their lower rates as a reward for their loyalty. New clients will be subject to your increased prices.
Need More Help?
If you have any questions, feel free to reach out to me at sara@truenorthcoltd.com or call us at (248) 653-1233. You can learn more about our services at www.truenorthcoltd.com. At True North Bookkeeping, we’re here to guide you on your entrepreneurial journey!
