Question: What are your best tips & strategies for coming up a price point for your product / service?
Question by: Tessa
Shoot for Simplicity
"Pricing communicates a tremendous amount to your prospective customer -- it has an effect before, during and after the sale. That is why creating a simple pricing structure that is easy to understand can a great impact on whether your final price point will resonate with customers in a positive way."
Survey the Market
"The most effective way to understand the value you offer is to talk with current or potential clients. Ask them what they need most from the product or service and find out how much they value it. Ask them how urgent and important the solution is and use their response to set a price."
What's the Customer Value?
"One of the most important things in pricing is creating strong value for your customers. If priced correctly, your customers think they are getting the best deal possible on a product they desperately need. Consider how much they pay for equivalent products, what they might pay a premium on, and how much of a premium they would pay for small extras."
What Do You Stand For?
"You need to figure out what you stand for -- best price or highest quality? One will dictate the price that you use. It is a good idea to know what is going on in the marketplace, but if you have the highest quality, you can be the most expensive -- you just need to justify it with that high quality. If you want to be the cheapest, just make sure you still have a margin."
No Such Thing as Overpriced
"If there's one thing I've learned about pricing our services, it's that there's no such thing as being "overpriced." The only way you fall into that category is if the value you provide doesn't line up with what you charge. Instead of focusing on price, focus on value, and providing a superior product/service to your clients. When value is perceived, price matters very little."
Don't Stop Testing
"Determining price can seem like the greatest challenge, but it should be the greatest experiment. Talk to your customers, determine your value proposition, and continue to test. If you can drive $2 million in value, you can certainly charge $1 million. Get to that point!"
What Do You Need to Make?
"I recommend deciding on revenue and profit goals first. Then, work backwards and figure out how much you need to charge to meet your goals and cover your expenses, and the time involved in delivering the product or service. If that price is higher than you've been able to charge in the past, try expanding into higher-end markets or investing in sales training."
Try Tiered Pricing
"Always offer a free (or almost free) version of your product or service to give them a taste, plus a tiered pricing based on more flexibility, volume, and access. If they can upgrade/downgrade anytime -- no questions asked -- they will absolutely love you."
Research Your Competition
"Call your competitors and ask for a quote from the services they offer to determine price points. That is the fastest easiest way to get a starting number. Ultimately, economics dictates what people are willing to pay, so that will also drive the final price paid for service. You definitely want fixed prices you stick to, but also should be flexible with long-term clients."
Still Strive to Break Even or Profit
"It can be difficult to put a price on something if you’re doing what you love. But, ultimately, you still need to break even or, preferably, make some profit. Survey past and potential clients to determine the value they put on your product or service, look at your competition, and determine how much your expertise is worth to get to a price point you’re comfortable with."
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC leads #FixYoungAmerica, a solutions-based movement that aims to end youth unemployment and put young Americans back to work.