Pricing, especially for services, is an imperfect science. The multitude of variables involved makes it a difficult challenge for any organization. Price too high and run the risk of flagging sales and an “over-priced” stigma; price too low and leave money on the table while being perceived as delivering less value.
This may come as a surprise to many of you, but even registration software companies struggle with pricing. Some charge per registration, some per month. Some charge a set-up fee or take a percentage from each credit card transaction. Many package a combination of those charges into their pricing.
The disparate pricing models in this software sector aren’t easy on the consumer and probably don’t set the best example for those trying to establish pricing in their own industries.
Here are some things you should do when setting your pricing:
1. Know your costs
The basic law of pricing says you first have to know your costs to know how much to charge to make a profit (or break even, if that is your organization’s goal). Factor all of your costs in and you have a starting place to begin engineering your pricing. Of course, you are going to have to have a good idea of how much you will likely sell – and what profit you want to generate – to then be able to set a price that more than covers those costs.
2. Know your market
Look around and see how the market currently values your service. What are people paying for similar products? What are your competitors charging? What would you pay? This is really step 1A, as you need to know whether the market is going to support your product that costs X before you even take it to market.
3. Know your customers
Conduct a survey or call your customers or potential customers. Ask what they would be willing to pay for your product. Try to determine where they see you fitting in the market – are you the generic brand that sells at a discount, or the Apple product that demands a premium? This doesn’t have to entail spending several thousand dollars with a market research firm – if it does, spend more time reading that research than reading this blog.
4. Keep it simple
Whatever offer you arrive at in terms of pricing, try to keep it simple. Too many tiers or too many extra charges are a turnoff, and are likely to leave you out of the mix when prospects are comparison shopping. Try to make your pricing a selling point, not something you have to sell. If your product is programs and events, try to be consistent from one event to the next.
5. Allow for flexibility
Everybody loves a deal. So leave enough flexibility in your pricing to allow early-bird discounts, series discounts, group discounts or some other type of discounts. As much as consumers complain about mark-ups and confusing pricing, they’ve consistently responded to mark-downs. JC Penney recently tried a straight-forward, no-more-sales-here’s-the-real-price strategy, and thus far, it isn’t working. Apparently, retail consumers' desire to get more perceived value for less trumped their desire for transparency in pricing. You might not be retail, but it’s a lesson to consider.
These are five tips that might help you make better pricing decisions. Keep them handy, because pricing isn’t a “one and done” decision – you should revisit it annually or even quarterly to stay competitive in the market and adjust to your own budgetary needs.
If you have pricing tips or best practices you think would could benefit others (and certainly add value to this blog), please submit them in the comments section below.