When you first launch a new product or service, it's important to decide on a pricing structure right off the bat. This will put you in a position to maximize your income while also setting up your business for future success.
Seven entrepreneurs from Young Entrepreneur Council share how they determined the pricing of their product or service.
Q. How did you decide on the pricing structure (and actual price) for your product or service, and has it changed since you started out?
1. Provide the service first, then build the model around it
We started off with one client needing website management, and when we realized this could be the foundational service of our business, we built the business model around it. While the original client received a custom quote, every client from thereon out was able to pick one of our package offerings, making it much easier to describe and sell what we offered. —Jason Unger, Digital Ink
2. Evaluate your competition
Everyone wants to charge as much as possible for their service or product, but at the end of the day it's all about knowing how to price against your competition while still giving value to your audience in the process. We've been able to do this in the online training and education space through the use of advanced courses and training material after users complete their original material. —Zac Johnson, How to Start a Blog
3. Be results oriented
Originally, my service was hourly-based, and while that worked for some time, the impact I was having on my clients made me quickly realize that not only was I not charging enough, but also my service was results-based. So I took the experiences of my best clients and used that as a foundation for what is now my most structured program. Then, as demand and credibility grew, so did my rates. —Thomas Edwards, The Professional Wingman®
4. Look to your customers
When I initially set out, I looked at potential competitors and set the pricing structure based on their rates. But I quickly realized what was more important when making business decisions was customer input. So from that point out, it didn't matter whether it was pricing, features, or products—we looked to insights from our users to understand demand. —Jessica Baker, Aligned Signs
More articles from AllBusiness.com:
- How to Structure the Sale of Your Business
- How Should You Structure Your Business?
- What Can You Do When a Customer Asks You to Lower Your Price?
- A Simple Way to Distance Yourself from Your Competition
5. Determine cost analysis and supply/demand
First, you need to know what your costs are to produce your product or provide your service. What do your employees cost? What is your overhead? Once you figure out what your costs are, research what the rates of your competitors are. What value are you offering your customers? What is the demand for your product/service? The answers to these questions will help you decide how to price. —Courtney Spritzer, Socialfly
6. Keep it simple
Pricing structures for real estate brokerages are irrational and I had no interest in following the pack. I created a fee structure that I thought was brilliant and extremely fair. Unfortunately, when I tried to explain it to consumers they looked at me like I was an alien. I then simplified our fee structure, creating a standard 20% buyer rebate with seller fees between 2 and 5%. Business exploded as a result. —Max Coursey, Tiger Prop
7. Determine the value and ROI
We have always had a set recurring monthly fee based on SEO project requirements. While this has not changed, we have adjusted internal resource allocation as we have gotten more efficient. At the end of the day, it's critical that you are considering the value you provide and setting a pricing structure that allows for a healthy ROI that can be verified in some concrete ways. —Christopher Rodgers, Colorado SEO Pros
RELATED: Are Your Prices Too Low? It’s Time to Rethink Your Pricing Strategy
