Proper pricing strategy is no guessing game

Tips For Small Business

August 24, 2008|By Stephen L. Rosenstein

Setting the proper prices for your small-business products and services can be tricky. Some business owners think they have it down. But after reviewing costs, expected profit, what competitors charge and what they think customers will pay, it becomes more complex.

Pricing too low can cut into your profits while overpricing can also hurt. Finding just the right balance is more art than science.

A common misstep - especially, in the early stages of business - is pricing too low in order to attract customers. While special deals can work to start the ball rolling, it's not always the best path. Low prices can draw customers interested only in price. They are the ones most likely to abandon you the moment they find something even lower elsewhere.

Pricing is partially psychological. You will want to set your levels according to the perception of your product service "brand." If you want to be in the premium neighborhood, your pricing can be higher to match an upscale image. Pay attention to price points. They differ widely by product and industry.

Pricing is a continuing process, so test it periodically. You may need to adapt to changing conditions. Competitor prices, your costs, customer perceptions and your profit expectations can all change. No pricing strategy is complete unless you know what your own costs are to deliver the product or service. Don't guess. Price it out to the penny and include all of your overhead costs, both direct and indirect. You should know exactly what you have to do in order to earn the profit you want.

Stephen L. Rosenstein is co-chairman of the Greater Baltimore SCORE Chapter No. 3. Call 410-962-2233 to speak to a SCORE counselor or visit www.scorebaltimore.org. To send a question to SCORE, e-mail

smallbiz@baltsun.com.

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