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Posted by on Jul 3, 2013 in Small Business Tips | 0 comments

Competitive Pricing for Growing SMBs: How much should you charge?

Competitive Pricing for Growing SMBs: How much should you charge?

One of the biggest challenges for solopreneurs and small business owners is figuring out the most competitive pricing for your industry.

Competitive pricing does not, however, necessarily mean the lowest pricing. Instead, it means creating a price plan that allows your small business to thrive within your marketplace and gives you the most opportunities for increased income and financial growth.

When you’re trying to determine how much to charge for your goods and services, it’s important to take a wide variety of variables into consideration. For instance, you wouldn’t want to blindly slap prices on your products based on how much other people are charging. Competitive pricing can only be created by accounting for the market rate as well as your business’s branding, niche, target market and even the time of year.

Ideally, you want to charge the absolute highest price possible while being able to guarantee as best you can that your customers are ready and willing to pay that price.

Here are a few areas of your business to examine in order to arrive at the most lucrative competitive pricing scheme possible:

Market Rate

While you shouldn’t base your pricing solely on what other people are charging, you shouldn’t ignore the market rate either. It’s important to do some research in order to determine how much your competitors are charging within your industry.

Notice that we said competitors, meaning the other SMBs your customers would be patronizing if you suddenly went out of business tomorrow. Don’t worry about how much giant corporations are charging for the same goods – of course they’re going to be able to do it for cheaper. Instead, research how much your competition is charging – businesses and solopreneurs that are similar to you in size, income and experience. From there, you can begin to develop competitive pricing based on that information.

Let’s say your small business makes and sells handcrafted custom baby bonnets. Your competition charges $50 per bonnet, and you’re thinking of selling your bonnets for $40 in order to offer your customers a more affordable option.

Before you start listing prices on your website, you should first determine the actual cost of making a single bonnet. How much do you have to pay your supplier? What about shipping costs? Don’t forget to account for the time you spend purchasing, taking inventory and organizing shipments. Put a dollar amount on time spent by giving yourself an hourly rate and adding that to the cost of production.

If, when all is said and done, it costs you $35 to make each bonnet, you can then decide if a $5 profit per bonnet is a realistic margin by which you can expect to make an overall profit. Consider your overhead expenses like office space rental, supplies and technology subscriptions when making your decision.

So what are you supposed to do if you simply can’t afford to lowball the competition and offer your products at a lower price?

Easy. All you have to do is take a good, hard look at your branding…

competitive-pricing-2Branding

Your small business’ branding goes way beyond the colors you choose for your marketing materials or the font used on your website. It entails the overall feeling and experience of your brand, and includes how your customers perceive your products and services.

Is your brand young and sexy? Fresh and forward-thinking? Traditional and classic?

Whatever it is, your pricing should reflect that.

Branding helps you create competitive pricing by finding numbers that reinforce your company’s image. Taking the above example into consideration, it wouldn’t make sense to promote handcrafted, customized baby bonnets and then sell them below the market rate. The very words “handcrafted” and “customized” indicate exclusivity – no other baby in the world will be sporting a bonnet quite like this one! That uniqueness is the promise of the brand, and your customers will expect to pay for that uniqueness. If you don’t give them the opportunity, they may lose trust in your brand. After all, how could something so great be so cheap?

There is a psychological element to competitive pricing. Imagine that you’re in a department store, and you see two similar-looking sweaters hanging side by side. The first sweater costs $25. The second sweater costs $250. Which sweater is of higher quality?

They may be made of the exact same material, but your mind automatically assumes that the $250 sweater is the “better sweater.” As inaccurate as it may sometimes be, human beings associate quality with things that are expensive. This doesn’t necessarily mean that you should sell your baby bonnets for $5,000, but it does mean that you can feel free to price your products higher than the competition if that feels appropriate for your brand.

Meet Emily Farrar


At Shoeboxed, Emily focuses on keeping our users happy and engaged. She is a graduate of UNC-Chapel Hill with a degree in Public Relations and an avid Tar Heels fan. She enjoys traveling, staying active and spending time with her six-year-old Maltese, Madam.

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