Lemonade Lesson #3 - Establishing Appropriate Pricing

"Appropriate pricing is not too low or too high. It is a combination of a couple of factors. you don't want to undervalue your product/service, nor let others undervalue it. . . . You also don't want to overvalue your product/service. When you overprice you lose credibility and sincerity - two things critical to success in business." excerpt from Lemonade Stand Selling

Appropriate pricing is determined by a couple of things. The first is how much your prospect will be willing to pay. Taking a look at market trends will give you an idea of what the going rate is. Be sure that you are comparing apples to apples. You want to know that you are comparing your product/service and its pricing to the same thing sold by others. If you offer more, your price will be higher. Likewise, if you offer less, your price should be less.

Also be sure you understand the need or desire the prospect has for your product or service. People have to need or want what you have to sell. Otherwise, it doesn't matter how great of an idea it is. And it has to be affordable.

Determine what it will cost you to create the product or perform the service. In order to make a profit you'll have to add a profit margin to that cost. Now look at whether that pricing is in sync with the market. Can people afford what you have to sell? If not, can you afford to lower the price?

Think about why we don't have alternatives to how we power automobiles - because right now the alternatives are too costly. Great ideas but not saleable.

Lastly, think about the value you bring to the table - what are your differentiators? These differentiators may point to validation of a higher price than your competitors. Remember that people buy the person first, the product/service second, and the company third. There is something to be said for what you add to the experience for the prospect or client.

Pricing is one of the most challenging aspect of sales that small business owners encounter. Having a firm grasp on the appropriate pricing will help you move beyond price and onto marketing and sales.

Does it make sense? Is your situation more complicated or harder to nail down? Let's talk about it. Feel free to comment on this post.

Next Monday we'll be discussing Lemonade Lesson #4 - Messaging 

1 comment:

Kelly Brown said...

Diane,
Great post -- i know i initially made the mistake of pricing too low and it certainly has bit us.