[Weekly Business Tips] Tip #1 - Pricing

[Jerod Evergreen]

Brief Intro
Thanks for viewing this thread. I am here offering weekly business tips to engage with the community, gain connections, and tout my expertise in this area. Each week will focus on a different subject in business, allowing you and your business to prosper. If you like the content or even want to purchase my hourly consulting services, feel free to PM me or comment below.

Tip #1: Pricing
Of all the tips I plan on presenting, pricing is one of the most important of all. Offer a price lower than your actual value, and you end up losing potential revenue. A price too high and not indicative of its true value will make you lose countless potential customers.

Pricing is arguably a science, some would even call it a double edged sword. Whatever you may attribute it, if you don’t find a right price, the business will plummet. No matter how good your product/business is, there must be proper price representative of its true value.

Before speaking of pricing methodologies, I will lay out some common pricing systems and structures that you could deploy depending on your business:

• Multi-Plan Service: It is typical of this structure to see 3-5 plans, each with different perks that accumulate as price increases. Some businesses will have a strategy in which the last plan is slightly more of a price increase, with a larger amount of perks to sweeten the deal and encourage purchasing the higher packages.
• Linear-scaling: This is ideal when pricing is defined on a limited set of factors, such as ram in the hosting industry. The price would scale proportionally with the factor at hand (I.e. $1.00 a GB of RAM)
• Monthly-yearly: Encourage customers to pay yearly for a service in exchange for a discount. This promotes upfront cash flow, and is often good for quick reinvestment and expansion of the company.
• Scarcity: With this method, a false sense of higher value is psychologically associated with the product. This is seen everywhere with messages like “HURRY NOW, only 22 left”
• Freemium: This is technically a pricing system, and is commonplace in Apps, where users are encouraged to purchase paid adding, despite the initial cost being free.
• Upsells: Have a low upfront cost, but have options for extras and adding that increase the customer value. An example would be a watch company also offering you watch bands at checkout to match your watch.

Those are just a few examples and there are many more out there, just do your research to find what works best for you. The following paragraphs outline how to find the perfect price for your business offerings.

Pricing Research

A consideration of price to make is that of your competitors. They provide a good basis in which you can find a winning price. Also compare the value you’re offering in contrast to their value. If you provide similar value to to a competitor, a good strategy would be to simply undercut them on price to gain more customers. Perhaps your value is lesser or higher than theirs, then you could either find a competitor more aligned with your value, or do further research to establish a proper price.

Another method of pricing is that of market research. By examining market trends of competitors and customer behavior, you could predict where the market is headed and how much customers are willing to pay, and ultimately drawing conclusions off them. This method is more advanced and can be quite mathematics/statistics, so it is only recommended for those who can understand it to a decent ability.

The last main approach of pricing is straight up polling and questioning of the target customer. Through this, you simply interview and collect responses from those that would potentially be interested in buying your product/service. It is critical that you do this with the right target customer, and not just anybody with a brain. Although simplistic in nature, this is among the more practical ways of pricing.

Outro
I appreciate your time for reading this and hope you found this useful. If you have any questions or comments, feel free to reply below. I am also offering business consulting services, so feel free to PM me if interested

 

[Jerod Evergreen]

Reserves for notes/updates.

 

[Jerod Evergreen]

Bump.

 

[tiehm]

The last main approach of pricing is straight up polling and questioning of the target customer. Through this, you simply interview and collect responses from those that would potentially be interested in buying your product/service. It is critical that you do this with the right target customer, and not just anybody with a brain. Although simplistic in nature, this is among the more practical ways of pricing.

I think one aspect to consider here is that most people work in their own favor. If you would ask me what I would pay for this product, I would give you a lower price than what I would be able to pay.

Another point which I feel should be covered is that price also expresses quality. No matter how good a phone is, I will trust a 500 USD phone more than a 50 USD one. You have to consider that if you consistently undercut your competitors you may seem like low quality.

Edit: Great thread for anyone who is fresh into economic stuff or wants to gain knowledge.