By Sweta Patel
Is it time to come up with a pricing structure for your business? Confused about where to start? The good news is that there aren’t any fixed rules about pricing strategies. The bad news is that if you price your product or service incorrectly, you risk missing out on profits. At the end of the day you want to make as many sales as you can at the maximum price possible. So where do you start?
Here are four things you want to keep in mind as you create your business’ pricing model:
1. Charge more than your comfort zone
You would be surprised by just how much your loyal customers are willing to pay for your product or service, when the perceived value of what they’re getting is high. Most business owners stray away from this pricing model thinking that it hinders rather than helps in the long run. It is a barrier, only if you are either currently pricing too low, or you don’t have any customers yet. Think about this: if you have a software company providing a solution you know is valuable, but you’re charging your customers less than their morning coffee run just because you don’t want to risk losing sales, you’re losing out on potential profits and hindering your business growth!
2. Charge earlier than you feel comfortable with
Yes, this is potentially another barrier to entry, but in the long run, you always want to cater to highly targeted and focused markets. If you’re only attracting one-time customers, or giving away your product for free just to build your list or to get feedback, your business will not grow. Charging sooner rather than later, you weed out people who do not help you bring in long-term revenue or growth. Using the software company example, the feedback of a paying customer is much more valuable than the feedback of a non-paying customer. And there is no way to get any sort of valuable feedback if you’re not charging anything for your product or service!
3. The lowest price plan may actually be killing your business (get rid of it!)
Imagine you are trying to build your business list and currently you have over 500 customers. That is great news, but guess what? They are all freeloaders if you’re charging too little just to build your customer list. That doesn’t do you any good in the long term, does it? This is why your lowest price plan (if it is below $10) may actually be killing your business. Bottom line: if they aren’t willing to pay you what you are worth, then they aren’t your customers.
4. Low earners increase your churn rate (get rid of them)
Customers who only opt-in to the bottom of your pricing grid are the most likely to stop paying for your product or service. They are often one-time customers who do nothing to help build your business in the long-run. They do not value what you are bringing to the table, and they probably never will. Your “churn rate” (the percentage of your customers who stop buying your product/service in a given time period) must be less than your growth rate, this is why it’s a good idea to kill your lowest paying business package and stick with the golden nuggets — the packages that bring in the most revenue and give your customers the most value.
Now it is your turn to determine the sweet spot for your product or service! Good luck!
Sweta Patel is a San Diego-based marketing entrepreneur whose company is Global Marketing Tactics.
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