4 ways to price your products or services as a Nashville entrepreneur
One of the struggles that Nashville entrepreneurs face when starting a small business is figuring out how much to charge for their products or services.
Here are just four of the many pricing strategies your business could use:
Pricing strategy #1: Cost-based
This might be the most obvious and straightforward way to determine pricing for your products or services. For products, you’ll need to find out how much the product costs to make, market and sell and then simply add a cost on top of those expenses to make a profit.
Similarly, if you are selling services, you’ll need to determine how long it will take you to complete a project and decide how much your time is worth. Finding out how much to charge for your time and expertise can be difficult. To start the process, find out how much money you need to make every month to cover your expenses and work backwards to find an hourly rate that fits into your existing schedule while still meeting your budget.
Basing your pricing model off of cost alone could actually lead to you undervaluing or overvaluing your products and services. After all, making sales depends on what your customers are willing to pay, and this strategy doesn’t really take that part of the equation into consideration. But if you are just starting out, basing prices on covering costs can be a quick way to get started and still know that you are making a profit.
Pricing strategy #2: Considering competitors
If you are entering a market with plenty of competitors, looking at their pricing model can be invaluable. There are a couple of ways to consider your competitors’ pricing models. First is to undercut their prices to get your foot in the door. This is called penetration pricing. It allows you to gain market share with lower prices and then slowly raise them over time as your brand gains power in the marketplace.
Another strategy is to match what your competitors are selling their products or services for and distinguish your business another way, either through unique branding, messaging or different offerings. This will ensure you aren’t way overpriced in the market and alienating customers that will go to your competitors instead.
Pricing strategy #3: Business lifecycle
What if you don’t have any competitors. Well, first you might want to rethink that, because you almost certainly have some kind of competition. But so-called “blue ocean” markets still exist. These are markets where the products or services are so new or innovative that you actually create the demand for your offerings on your own, and don’t have any competition to help set prices.
In this case, you can charge a premium price. When you introduce a brand new product or service, or any offering that is so significantly improved over competitors’ offerings, you are able to set the price yourself and can charge much higher.
Premium pricing really only works in the beginning of your business’s lifecycle. As more competitors enter the marketplace, or catch up to your innovations, you’ll need to adjust your pricing to accommodate pricing pressures.
Pricing strategy #4: Bundling products/services
No matter where your small business is in its lifecycle, bundling products or services together is one of the most popular ways to price products in a way that works for you and your customers. Everyone has seen this in action. For example: the perpetual “buy two, get one free” deal at Boot Barn here in Nashville. This is a great way to encourage tourists to buy an extra pair of boots rather than just one.
A lot of stores use this tactic to move products that aren’t selling as strongly as others. By bundling them together and lowering the price of each item into one slightly lower overall price, your small business can entice customers to buy more.
However, it can also be useful to think about bundling in terms of tiered pricing. Break down each one of your services or products to determine which ones cost the most to fulfill and which ones are the cheapest to provide to customers. Then make “bundles” of services or products that match low-cost offerings with high-cost counterparts to make a more valuable bundle.
Chamber member Southwest has created a bundle with their Business Select fares. Consumers pay a premium for the relatively low-cost amenities of priority boarding, free cocktails and more frequent flyer points. These add real value to the flying experience and allow Southwest to charge more without breaking the bank.
If you are a small business owner looking to grow your business, consider joining the Nashville Chamber. We offer exclusive benefits for your business including our Member Directory, networking events, leadership development training and more. Learn more about these benefits by downloading a free guide to membership below.