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. Here are a few areas of your business to examine in order to arrive at the most lucrative pricing model for you.

Target Market

Newsflash: Not everyone wants the lowest price! In order to assess what your customers are willing to pay, you must first define your target market.

Many SMBs make the mistake of trying to appeal to too many people. Remember the old saying: “By trying to please everyone, you please no one.”

Let’s use Nike as an example. The people featured in Nike ads define their target market. Nike customers are professional athletes, hardcore fitness buffs and people for whom exercising is a way of life. Even if Nike uses a “regular person” in their ads, that regular person almost always has six-pack abs and more definition than the dictionary.

And yet, regular people buy Nike shoes and products every single day. Even people who don’t look anything like the people in the ads. Why? Because Nike is hyper-specific about its target market. It is that specificity that helps the customer decide how they feel about the product and their relationship with the product.

Create a profile of your ideal customer as an individual person.

How old are they? (Real people aren’t 37-45 years old – what is their exact age?)

What do they like to do on Saturday mornings?

What is their biggest fear?

Create a profile that gets inside your customer’s mind in a way that is deep and intimate. Then, once you’ve created that profile, ask the most important question of all: What would they love to spend on a one-of-a-kind, custom-made baby bonnet? Not what would they be willing to spend, but what would they love to spend?

What’s the number that feels so good to them, they’d be willing to pay even more? What’s the number that makes them feel relieved to have found such a great deal, even if that “great deal” is relatively expensive?

Give your customer the gift of competitive pricing by charging them an amount that makes them feel like a savvy shopper who’s just scored an amazing deal on an item they’d happily pay thrice the amount for.

competitve-pricing-3To negotiate or not?

Once you set your pricing, it’s up to you whether you want to negotiate your rates or not. If you’re in a service-based industry, it’s crucial to decide when, where and if you’re willing to negotiate your prices.

Service-based businesses may not have any tangible products to sell, and are therefore more frequently the victims of unwanted negotiations. It can be frustrating that a customer who’d never question paying $6 for a latte at Starbucks feels entitled to a discount every time you send them an invoice. If they’re not negotiating with their barista, why do they feel comfortable asking you for a deal?

If negotiations are common for your industry, you may feel inclined to participate in the process. However, it’s ultimately up to you to set your prices and stick to them. Refusing to come down on prices indicates that you have thought your pricing through, and that you have priced your products and services a particular way for a reason.

When you’re brave enough to say no to negotiations, you show your customer that you aren’t afraid of losing their business. You have plenty of customers that are happy to pay these prices, and you’ll be happy to accommodate this person as well – once they’re also willing to meet your price.

You should also consider how you’ll feel working for a lower rate or selling your products at a lower price. Is the work worth the psychological impact of providing services for less than you know they’re worth? Better to have fewer customers paying higher prices than hordes of customers paying less than they should be. If you feel you deserve $100/hour and end up working for $50/hour, you’ll end up resenting the process, which in turn will negatively affect your work.

If you’re unable to get away from negotiating, try this trick: Create pricing that is above and beyond what you’d hope to earn for your services. Then, when your customers ask for a deal, you have some wiggle room. They will feel like they have “talked you down,” and you’ll still be earning what you feel comfortable with.

Creating competitive pricing for your small business is a highly personalized process. Be sure to begin by creating a clear picture of your brand and target market. Remember that cheaper isn’t necessarily better, and that the prices you choose will inform the customer as to the quality of your products.

Finally, don’t be afraid to charge more than your competition – higher prices will attract customers who are unafraid to spend money to get what they want. And isn’t that everyone’s ideal client, after all?

How did you decide price points for your small business?

References:

1. The Small Business Administration

2. The Huffington Post

photo credits: www.smartfile.com, www.getacoder.com, carlosvelastegui.com

Author: 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.