How To Set Your Prices

The practice of establishing your pricing structure can vary greatly depending on what you’re selling, whether it’s a product or service, etc. However, the best go-to strategy for any business is to check out your competition. If you’re selling a product, this could be as easy as heading to a couple competitor websites to see what your product is selling for. For service industries, it can be a little trickier. If you can’t find anything online, you can always conduct a little corporate espionage and give your competition a call to ask about their pricing structures. There are also a lot of articles online that claim average rates for service based jobs, but be aware; these estimates are usually low, and the size of the contract will often scale with the size of the company they’re providing the service to (even if the amount of work is not necessarily proportional). 

When it comes to picking where to place your pricing amongst your competitors, it might be tempting to try and undercut everyone to make the best offer. While this practice definitely works, be aware that every company looks at cheap things through one of two lenses: this is a great deal, or there’s a reason it’s that cheap. 

A few things to take into consideration include; do you have a competitive advantage? How is your history/track record? Obviously, a company that’s been around for a while with a great reputation and loads of testimonials will be able to charge more than the new kid on the block. Sometimes the only option is to start cheap and scale up pricing once you build a reputation. An exception to this is if you enter the market with a distinct competitive advantage. If something about your product or service legitimately makes it better or different than the competition, feel free to charge more. In the world of business, better is basically always more expensive. Organic foods, cruelty free (everything), domestically produced goods, ad free experiences and more are all examples of situations where people will gladly pay more because they see something as better or different. 

One thing to keep in mind is your production costs and other business expenses. Walmart is famous for having a strategy of selling things at a loss in a new area to undercut and force out all the local businesses, since they can’t afford to sell that cheaply. Walmart takes the loss, and once they’re the only retailer left, raises prices again to get back into the profitable range. Since the local businesses weren’t doing volume anywhere near Walmart’s, they had no way to keep up. Especially if you’re moving low quantities, your overhead might have to play a big role in your pricing. 

If your product is a service, in the beginning it might be helpful to outline your pricing based on the actual time it takes to complete the service. This is actually how my company Golden Aspect used to establish pricing years ago, where each service we offered was broken down into exactly how much time it was expected to take on a weekly/monthly basis and then multiplied by our desired rate of pay.