How To Price For Optimum Profit - 3 Things to Consider

One of the greatest problems that businesses face is getting the pricing strategy right. This article explores the three key factors all companies need to consider when getting this vital element on target. Missing only one of the three can have disastrous consequences.

As with everything, it does not take rocket science to get this right, however one slip, could seriously damage your bottom line. The three factors, equally weighed are as follows:

• The value that your customers put on your product and service ("Perceived Value"). Take a look at our article from 01/30/2018, Your Web Site's Success Are You A Perceived Expert

• Will you make a profit?

• What your competitors charge for the same or equivalent (some use this pricing strategy based almost entirely on competition's prices. This is a common error. But don't take my word for it...) Understand that competitive pricing is one strategy that involves many factors. Check out this article here.

So how do we define customer value?
It is defined pretty well in this article in the Harvard Business Review.

Value is not always quantified in monetary terms. A golfer may go to a professional, get three lessons, and knock 10 off their handicap – so what is that worth to them? If they had previously spent $5,000 on lessons and still been awful?

The most important consideration is that the buyer must feel that they got “good value” from their purchase. The way a number of customers feel about their purchases allows companies to measure value.

After figuring the cost of doing business - payroll, marketing, supplies, bills, taxes, etc. - you see your actual profit margin. When you are determining your value and pricing strategy, you should be able to project your cash flows with general accuracy. The more data you collect the better you guide and refine your business practices. Because your profit is what is left after ALL expenses and disbursements, your goals or quotas must exceed total expenses and disbursements significantly enough for sustainability and growth.

This is a process I had to make many poor decisions in order to learn first hand. Do a little research on pricing strategies. Competitive pricing is not a bad strategy - let me be clear - I merely encourage you to understand what is involved in the process. Always price for optimum profits regardless of what strategy you choose. Unless making money is not really your main objective.