Here are 10 valuable tips that I learned in my operations and marketing management courses and experience in my businesses to consider when you are creating your pricing strategy.
Start by doing your research on the competitors in your niche.
Find similar products to your offerings, (look on Etsy if you’re a small creative business owner), and write down a list of all of these products’ prices.
You’re going to find people who price similar types of products extremely low compared to what you know they are worth. These business owners are implementing an economy pricing strategy to attempt to maintain cost leadership; think of Walmart with their “always low prices,” motto. This strategy requires them to sell more products at the lowest prices to receive the same profits as someone with a competitor-based or value-based pricing strategy selling less products at highest prices.
Once you identify your target market, you can focus your energy on the customers that see the value in your offerings, and then offer your products for the value that your target customers think they’re worth. This is called the value-based pricing strategy and is highly effective if you are offering specialized services to your customers. Make sure your value is well defined for your customers if you’re using this strategy.
There are various ways that you can create added value to your products, such as creating an easy, fast, personalized user experience from the moment they search for your product on Google to the moment they receive, use, and love your product.
Don’t sell yourself short; especially if you’re comparing your value to the capitalistic standards we have all become accustomed to. By the way, did you know that the federal minimum wage is still $7.25 and hasn’t seen an increase since 2010? Funny? Yes. But not funny-“ha-ha,” funny-weird.
For physical products, consider using the cost-plus pricing strategy. This is one of the simplest pricing strategies because you take the production cost + a certain percentage representing your desired profit margin. When you’re just starting out, 30% profit is a good area to start with.
To get your foot into the market, you may consider offering your prices a little bit lower than you normally would, or even for free in some cases, to build trust and returning customers. Then over time, once you collect and analyze your sales data, you may increase the price of your offerings and see your loyal customers continue to support your growth. This strategy is called penetrative pricing.
Know your costs: supplies, equipment, and overhead. Add together every $ that goes into creating your product and determine the total cost of goods sold for each product. A rule of thumb is to charge 2 times your cost for wholesale orders, and 3-4 times your cost for retail orders.
Don’t forget about your labor costs and time that you put into creating your candles and starting your business. Even if you want to offer your products for low prices to attract your friends and family who may not even be in your target market to begin with, it’s important to remember the time and energy that you spent on perfecting your craft. This is your business and you are technically an employee of your business. Would you feel okay charging prices that are so low that your labor as an employee becomes worth $1 an hour? I don’t think so. We aren’t doing that in corporate America and we sure aren’t doing that to ourselves.
Hang in there, small business owner. I know that it can be a little overwhelming to start your business and do everything mostly by yourself; from product ideation to production to marketing and sales to shipping, etc., but if you are still here with me it’s because you believe in yourself and you want what’s best for your business. I believe in you. Keep going.
Here’s my candle business website where you can see my pricing strategies I have implemented: www.OlivesCandles.com
Please feel free to reach out at email@example.com if you need further help with or feedback on your pricing strategy.
Until next time!