Are you ready to increase prices but you’re not sure where to start?
Do your competitors charge higher for similar services?
And, even though you were happy with your pricing when you started, do you feel like you are now undercharging and just feel stuck about how to change it?
This is another one of those common stages in the entrepreneurial journey that we speak about a lot here in How Great Marketing Works.
Entrepreneurs often set prices quite low early on in the business.
Then find themselves in a rut because they discover that they undervalued what they were providing in order to win business at the start.
As the business grows, the realisation comes that this pricing strategy is not really sustainable and they face the challenge of figuring out how to increase prices and not lose business.
There is often a fear that if prices increase too much then nobody will buy.
Conversely, if they don’t increase prices then the business will never make enough profit to be sustainable and ultimately grow.
How to Develop a Sustainable Pricing Strategy so you can Increase Prices AND Grow Your Business
It’s important to understand that one should never price in a vacuum.
There is always context and that context comes from the marketplace.
There are 4 essential factors that influence how you price:
- The first and most important is calculating how much it costs to produce this product or deliver this service. It is only with this information will you know what you need to make a profit.
- The second is about understanding whether your competitors are offering a comparable product and what pricing strategy they’ve adopted.
- Thirdly; you need to consider what this price says about your product or service and how you want to be positioned in the marketplace.
- Lastly, and quite critically, it is to understand what the market is willing to pay for your product or service.
It might sound strange, but pricing isn’t purely a financial decision.
Of course, looking at cost is the most important part of this equation.
You do need to know how much it costs to bring your product or service to market.
This first factor influences the other three, because you have to know how much it costs to run your business.
Everything else is a marketing decision because it dictates who your customer is, how you are positioned in their mind and how that directly impacts the way you grow your business.
Understand the Market and Position Your Prices
To get a real understanding of the market and what it is prepared to pay for products or services such as yours, it is always helpful to profile the pricing strategy of your closest competitors.
Doing this work now will allow you to charge at a rate that the market will accept, and perhaps even higher, if you dig deep enough to understand how you are different from your competitors.
This is a key step that participants take in the Get Strategic Get Results program.
And please resist the temptation of falling into the trap of thinking you don’t have any competitors!
Everyone has competitors. You just might not realise what those competitors look like.
Think of it as competing for a share of your customers wallet.
“If your customers are not spending it with you then they are spending it with somebody or on something else.” Finola Howard
Look carefully at the sales and information pages of four or five of your competitors and break down:
- What are they offering?
- How are they pricing each product or service?
- In which way do they describe their product or service?
- How do you compare?
If you want to increase prices, does the market understand why you’re “worth more” than your competitors or more than you are currently charging?
Do you need to make it clear why you or your products/services are worth more?
Have you made it obvious what’s included?
There’s often a tendency to overcomplicate things, to share everything that you are excited about with what you do or what you provide.
Keep it simple so your customers can understand it.
Focus on what problem you are solving for your customers and why your solution is best for them.
It might be helpful to map out the various pricings and offerings of your competitors on a spreadsheet.
Work out your point of difference in pricing terms, and tighten the scope so it’s clear what your customers are getting.
Show them the value and make sure you know your value!
Once you’ve done that, you’ll feel more confident when you increase prices.
What Does Your Price Say About Your Offering?
Whether you price high or low, you’re communicating something about your offering and it frames you in a certain position.
When you’ve looked at your competitors, you can get a sense of that positioning.
So, if you price high, what does that say about your product?
And, if you price low, what does that say abut your product?
My one piece of advice here is that pricing too cheaply is always a race to the bottom.
If your competitors are all trying to be the cheapest in the market, you need to find another market.
A cheaper price often suggests poor quality.
By contrast, a higher price often suggests higher value and tells a story about you and your offerings.
What’s the story you want the market to hear about you and your products or services?
How Much is the Market Willing to Pay for Your Offering?
Entrepreneurs often start their businesses with a desire to help people with a particular challenge or pain point.
That desire can often result in unclear boundaries and the need to give more and more which can result in customers expecting that to be the norm.
Giving too much without fair exchange, undervalues your offerings, and your customers are often blinded from seeing your true value and this can often attract the wrong customers for your business.
Take time out to consider if the customers you’re currently working with, or who are showing interest in your offerings, are the right ones for you.
If not, know that it’s time to move on.
Make sure the right customers see the value of what you do.
Your messaging needs to be clear!
It needs to be clear what you do, how much it is and the value/benefit to your customer of buying it from you.
They can have more from you if they want, but your products or services must be clearly defined and priced.
When your services are not generating the value that you want from them, it means that your messaging around your price, your value and your worth are not clear.
This is what we call a value proposition and it needs to be as clear and simple as possible so people can choose to buy from you because they clearly understand what you have on offer.
If at that point your target customers are still not buying from you then you must ask yourself if you have something they want or if you have priced yourself out of the market.
Price is a Strategic Decision for Both the Short and the Long Term.
Consider mapping your pricing strategy for the next five years as a tangible way to pursue a particular position you’ll achieve in that time period.
Factor in when the most appropriate time is to increase prices so you’re prepared, and can let customers know in advance.
Be patient; when you want to move from point A to point B, in terms of pricing, it can take time.
Give yourself that time.
Let me know if you’ve any questions or insights you’d like to share on this topic in the comments below.
And if you’d like to know more about how to build a marketing strategy that matches your business reality with your business dream then check out Get Strategic Get Results™ our signature program.
This is a process that works because you build your marketing from the inside out.
And that never fails.