As an entrepreneur one of the biggest obstacles you will face would probably be establishing the price. Difficulty in establishing the price does not only happen to startups, this includes well-known and stable businesses as well. The usual theme with most pricing issue is risk: establishing the price that are too high may push potential customers away, establishing the price that are too low and you cut on your profits.

This pricing enigma drives most owners to default discounting. However, risk in most cases can be eliminated by getting more information. In general, the more you know the less risk it would be for you. Establishing the price is all about getting the right information about your market, your customers and your own internal numbers that drive your profit.

When it comes to establishing the price, here are some things that you should remember. If you can avoid these things you will not only be ahead of your competition, but also you will be ahead of most businesses.

1. Establishing the price that is too low – For some businesses they do not see this as a mistake for see this as a strategy. However establishing the price at its lowest is not a good strategy. Going in too low all the time may be in some way good for you top-line revenue number, but it spells out catastrophe on your bottom-line profit number. When establishing the price keep in mind that your goal is to earn profits, after all your business is not some charitable institution.
2. Applying the same margin for all products – it is not written in stone that all products you sell need the same margin. In real life, slower moving items need higher profit margins. You can sustain a lower margin based on high sales volume.
3. The difference between margin and markup – in establishing the price one must have a clear understanding what is margin and what is markup. When we mention margin this means it is based on sales price. Markup is always based on cost.
4. Leaving some costs behind – in establishing the price one must take everything into account. Each and every cost should be identified. Even the tiniest detail like the processing fee of the credit card you have used, delivery or shipping costs, etc. In establishing the price do not forget these things, view them as diligently as you would your cost of goods sold as having an impact on your bottom-line.
5. Rivaling competitor’s price – instead of following your competition, try to do more research and figure out the value that you truly offer your customers. After doing so, establish the price according to the value you give customers. Through this you are in the best position to defend your price against the competition, provide a list of reasons why your offer is worth the price.

Establishing the price goes hand-in-hand in building a profitable business. Avoid these things I have mentioned when establishing the price of your products.

 

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