How to Set Up Price Levels for Your Business
Setting up pricing levels for business will be necessary for maintaining a profit and making sure you and possibly your employees are able to keep a sustainable or desired income.
When setting up your pricing level, there are three different methods of pricing your business’s services and products.
The most popular pricing method is called cost-plus pricing. This is where you combine all contributing costs which could include the cost of each unit, the price of the labor, or both. After adding up the initial cost, a fixed percentage is then added to get the total price.
Another common pricing method you might be familiar with is competitive pricing. Competitive pricing is based on watching what your competitors are pricing similar products and services at and either pricing at a relatively similar amount or at a lower amount.
Value-based pricing is another possible method where you price your product or service on the value it has to a customer. For instance, how well does it fit into the needs or wants of your customer base?
No matter what method you choose, you will have to take the following steps to ensure your pricing is where it needs to be to make your business more successful, especially from a financial standpoint.
First things first, you need to identify your target market. Look at what your demographic is. Your location could also play a big role in your pricing levels.
Second, you will want to take a look at your competitors. Even if you don’t use competitive pricing, it’s helpful to understand more about your industry and the value you bring.
Next, decide how many pricing levels you want to offer. For instance, think about whether or not you want to offer bundled products at a lower cost than buying items individually or if you want to combine services into a package deal.
Finally, create your financial plan and strategy for each level. Think about how those prices will affect your books after paying out expenses and additional costs. Will you break even, will you make a profit, or will there be a loss?
Reviewing your business goals will also help you create a better strategy to price your services or products in a way that benefits your business financially.