Never underestimate the importance of charging a fair price for the products or services your business provides. Many entrepreneurs are reluctant to increase prices, even when presented with evidence that they should do so. Some fear customer backlash. But in our experience, price increases that reflect the cost of providing the product or service are usually easily accepted by customers.
What is a fair price?
A fair price is the price point for a product or service that is perceived by your customers to be reasonable and allows you to make a reasonable profit. Do not confuse fairness with affordability. The price might be too high for some potential customers, but still fair.
Who gets to decide if your prices are fair?
In my experience, the main reason many small business owners accept less than a fair price for their product or service is fear. That’s because your customers will ultimately decide if your prices are fair. If your customers can get exactly the same product or service at a lower price, then they probably will.
So how do you get a Fair Price for your Products or Services?
It’s virtually impossible for a small business to compete solely on price. There will almost always be someone bigger, with more resources, and lower costs, especially when most things we want to buy can be purchased online.
The key to getting a fair price is uniqueness. You can create uniqueness in so many different ways, even if the actual product is very similar. Uniqueness comes from things like ease of access, trained and knowledgeable staff, exceptional customer service, the contributions you make to your community and more.
Show me a successful small business, and I’ll show you an entrepreneur that understands the importance of being unique.
Price for Profits
Set a price that factors in all of your costs and allows you to make a reasonable profit. This method is referred to a cost-plus pricing.
A lot of literature suggests this is the old-style approach. These experts suggest that your customers don’t care if you make a profit. This is often the case if we’re buying something from a large multinational company, but in our experience not true for most small businesses. That’s because you establish emotional connections with your customers. If your customers value your product or service, then they want you to succeed.
Set a High Reference Price
Normal pricing for your product or service is your chance to establish the customer’s perception of fair value. You need to set this price high enough to allow for promotional pricing such as special introductory offers.
This is why hotels routinely establish rack rates that you almost never pay. They are constantly discounted to increase the perception of value.
Believe in yourself and your product or service
Buyer perception of a fair price is heavily influenced by your confidence in the fairness of your price!
That means you should never fear conversations with customers that focus on price. We live in a world where we tend to assume businesses are out to take advantage of us (especially big businesses). Customers that ask for a discount or complain about prices are often testing to see if you and your staff believe your prices are fair.
This objection usually disappears when they sense your conviction that it’s a fair transaction.
However, if you need a confidence boost, get an outside opinion. Explain the process you used to set your prices and ask for feedback.
Drop High Maintenance and Low-Profit Products or Services
If you stay in business long enough, there’s a good chance that a few of your products or services are just not worth the effort. These are the products that have high customer service costs, or where you struggle to provide unique value.
Don’t waste time and resources on these kinds of products or services. They just drag down your profit margins.
By Denise Alison