How much should you charge?
This is a hugely important question. How much you charge for your product or service affects everything - how much you profit, how much you're able to pay your employees and vendors, how much you can spend on supplies, marketing, and everything else.
So how do you decide?
First, it's time for some competitive analysis. Once you determine who your major competitors are, do a thorough check of all of their pricing. What do they charge online? Is it different if you call or go into a store?
What does their pricing really include? What should your pricing include?
photo © 2008 Paul Falardeau | more info (via: Wylio)
Some of your competitors probably charge a little more and include some extras. Some charge a little less and use a more a-la-carte plan. These extras should make for happier customers with more loyalty to your brand. This is what's behind L.L. Bean's recent decision to include free shipping on every order. Watch out, though - if you include too many extras, you can't stay in business.
By the same token, price yourself too cheap, and you just can't generate the cashflow to stay solvent (like former apparel retailer Steve and Barry's).
So now what?
Say you do decide to go the L.L. Bean route and include free shipping on every order. Can you really do this? If you're not sure, ask your financial analyst (or hire a financial analyst - it's worth it) to do a full rundown on how much including shipping in every order would really cost you. If you find you can't afford to include shipping on every order, are there certain orders where it's better to include free shipping?
Like maybe for first-time customers, or customers referred by other customers? Or your most loyal customers? Or customers who spend a certain amount? Or even customers ordering your clearance items?
You can do (or have someone do) a financial analysis on each of these scenarios, according to your current order pattern. Then, you'll see what each might cost you.
What about pricing on everything else?
Run the numbers. What can you afford to charge? You'll want to leave room in your regular pricing for a sale, should you need to discount items later to move them. If you're charging far more or far less than the average price, you should have a good idea as to why. Is your product better than others like it and that's why it costs more? Is it handmade? Made in the USA? Environmentally friendly?
When you charge less, customers want to know what that is too.
Oh yes they do. I promise. So why are you charging less? Do you negotiate the best prices from your suppliers? Use super-efficient manufacturing methods? Buy from a variety of vendors so you're always getting the best price? Concentrate on really low overhead?
Finally, always be willing to change.
If your current pricing strategy isn't working, change it. You might find you're not charging enough for some things and too much for others. Keep analyzing and testing until you get to where it works.
Does the thought of a pricing strategy give you the shakes? Let me know, I can help.