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.

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.

How to Keep Clients Happy

Instead of spending tons of money and resources attracting new client after new client, it’s much more efficient and beneficial to cultivate the relationships that you already have. Take these steps to ensure that you keep your clients– and keep them happy.

Forget finding new clients or increasing conversions – if you want to grow your small business to astronomical heights, you have to learn how to keep clients, and how to keep them happy.

Here at Shoeboxed, we believe that instead of spending tons of money and resources attracting new client after new client, it’s much more efficient and beneficial to cultivate the relationships that you already have. Doing so will dramatically increase your passive income and the stability of your business.

You’ll also find that by taking excellent care of your current clients, the number of referrals you receive will increase exponentially. By taking great care with each customer interaction, you’ll be the first person each client thinks of when offering recommendations to friends and family.

Go the distance

With each interaction or transaction, you have the opportunity to merely meet your clients’ expectations or exceed their expectations. When you engage in the latter, it’s like offering an unexpected gift, and clients won’t soon forget the feeling of delight with which you provided them.

So how do you go the distance?

Let’s say you’re in the plumbing business, and you’ve given your customer a three-hour window for when your service team member will arrive at their home.

Unlike most other companies, who show up at the very tail end of that window, your service team member arrives five minutes early, finishes the job with expert speed and precision, and calls the next day to follow up with the customer and make sure everything is in working order.

None of those efforts cost your company a dime, but they are sure to secure a reputation for excellence. Because you went above and beyond what is considered the norm for your industry, your customer now associates your brand with surprise and delight. You can be sure that the next time one of her friends mentions a plumbing problem, she’ll eagerly share her story and her recommendation.

Remember that people want you to be outstanding, and not simply because they enjoy getting their money’s worth for goods and services. When you succeed at providing excellent service, your clients get to feel savvy and in-the-know. They feel like they’ve made a wise investment and feel smart every time they patronize your business. It is this feeling – even more than your product – that will keep clients coming back time and time again.

keep-clients-happy-1Manage Expectations

Before you can exceed clients expectations, you have to know what those expectations are. Besides having a firm grasp on how things are normally done in your industry, you need to educate your clients as to how you do business.

At the beginning of the relationship, set clear boundaries and offer a firm set of policies and protocols. For example, if you run a service-based business like tutoring or coaching, make sure your policies on cancelled appointments are crystal clear. Help your target market learn what to expect from you, and why you’re different from the competition.

Once customers know what to expect from you under normal circumstances, they’ll be able to appreciate when you go above and beyond. By creating specific expectations, you’ll be able to easily surpass those expectations, improving customer loyalty and trust.

Remember that your goal is to create positive associations for your customer – when they think about you or your business, you want them to have a visceral reaction.

In the above example, you could create this feeling by making a one-time exception to your cancellation policy. Because the customer already knows the rules as they apply to everyone else, this exception will make them feel extra special and indebted to you. They will feel that they are getting service and treatment above and beyond the rest of your clients, which in turn will prevent them from missing future appointments and keep them coming back for more. (Use this tactic with care, however – there is a fine line between exceeding expectations and letting yourself be taken advantage of!)

Take advantage of mistakes

Speaking of taking advantage, be sure to make the most of your mistakes. You don’t keep clients happy by never messing up – you keep clients happy by solving problems in a way that exceeds their expectations.

Mistakes and problems are potential gold mines for your small business! They allow you to show what you’re made of, and give you an opportunity to truly wow your customer.

Think of a restaurant you always patronize. The service is great, the food is great, and you always have a good time when you go there. Now imagine that same restaurant making a rare mistake – not only did they get your order wrong, but the wine was bad, the soup was cold, and for some reason it took forever to get a table even though you had a reservation.

The owner of this restaurant has a few options. She can hope that because your previous experiences were positive, you’ll just let this one slide and keep coming back. She ignores the problem, hoping that will make you ignore the problem as well.

She could also buy you dessert or give you some sort of discount in typical restaurant-apology fashion. While this is certainly better than nothing, it’s also typical of her industry and may very well leave her customers feeling less than dazzled.

Or, she could go above and beyond.

She could begin by acknowledging the problem and directly apologizing for the fiasco. She could then go out of her way to make amends – not only is the customers’ entire meal paid for; they’re given a generous gift card for their next meal, which will also be on the house when they return.

This way, when the experience is related to friends and family, the focus is no longer on the cold soup and bad wine. Instead, the owner’s customers have a wonderful story to share about how the problem was handled.