Psychological Pricing: 4 Tips and Tactics
By Andrew Patricio
December 23, 2015
Small Business & Entrepreneurship
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By the small business content developers at BizLaunch.com.
Finding the right price point for your products is essential to maintain a high enough profit margin to pay your business expenses and make you enough money to pay your own bills. But how do you know what to charge? These four tips will help.
Tip 1: Look at the Competition
You have to first know what others are charging for similar products. Pay attention to any differences that would justify a price discrepancy. For example, if you run a dry cleaning facility, and the place down the street charges more, do they have eco-friendly practices that justify the higher price?
Make a list of the details of the products several of your competitors offer, as well as the price.
Tip 2: Find Your Unique Selling Point
Now that you know what others charge, consider what makes your product better. If you offer features the competition doesn’t, you can charge for it. Conversely, if you pride yourself on being more cost-effective, you can charge less. Just don’t make a point of offering the lowest price, or you’ll eliminate your profit margin completely.
Tip 3: Start High, Discount Low (if Necessary)
If you end up charging more than people want to pay (and you’ll know that’s the case if no one’s buying), you can always discount. But you shouldn’t raise your rates if you find that people think your prices are low! So even if your price is a little steep, test out the best price point by offering sales and discounts and seeing which price point people really get excited about your products.
You could even A/B test your pricing. Create two different landing pages for a given product, each with its own pricing. Pay attention to which makes more sales. That’s your price point.
Tip 4: Measure and Tweak Annually
There’s no law that says once you set your price it’s carved in stone. You can raise your prices; just don’t do it too frequently. It’s a nice gesture if you continue to offer the same pricing to existing clients if, for example, you charge them each month for fees. Consider them “grandfathered in,” and charge new customers your new rates.
If you do raise the price for existing customers, give them plenty of notice, and don’t make the price increase too drastic, or you’ll risk losing their business completely.
Finding the right price point for your products is essential to maintain a high enough profit margin to pay your business expenses and make you enough money to pay your own bills. But how do you know what to charge? These four tips will help.
Tip 1: Look at the Competition
You have to first know what others are charging for similar products. Pay attention to any differences that would justify a price discrepancy. For example, if you run a dry cleaning facility, and the place down the street charges more, do they have eco-friendly practices that justify the higher price?
Make a list of the details of the products several of your competitors offer, as well as the price.
Tip 2: Find Your Unique Selling Point
Now that you know what others charge, consider what makes your product better. If you offer features the competition doesn’t, you can charge for it. Conversely, if you pride yourself on being more cost-effective, you can charge less. Just don’t make a point of offering the lowest price, or you’ll eliminate your profit margin completely.
Tip 3: Start High, Discount Low (if Necessary)
If you end up charging more than people want to pay (and you’ll know that’s the case if no one’s buying), you can always discount. But you shouldn’t raise your rates if you find that people think your prices are low! So even if your price is a little steep, test out the best price point by offering sales and discounts and seeing which price point people really get excited about your products.
You could even A/B test your pricing. Create two different landing pages for a given product, each with its own pricing. Pay attention to which makes more sales. That’s your price point.
Tip 4: Measure and Tweak Annually
There’s no law that says once you set your price it’s carved in stone. You can raise your prices; just don’t do it too frequently. It’s a nice gesture if you continue to offer the same pricing to existing clients if, for example, you charge them each month for fees. Consider them “grandfathered in,” and charge new customers your new rates.
If you do raise the price for existing customers, give them plenty of notice, and don’t make the price increase too drastic, or you’ll risk losing their business completely.