A Startup Guy

Setting a price for your products or services can be a real challenge for entrepreneurs. What’s a good price that will attract customers, but still deliver an attractive profit for the business?

In past decades it wasn’t quite as much of a struggle. Businesses would frequently just use simple formulas. Cost plus x% for profit margin gives you a price. Want to be the cheapest? Just price your product x% lower than your competitors (without taking a loss). Formulas can still be extremely helpful, but we have a myriad of additional options, features, prices, sizes, colors, flavors and even peer pressures to consider that weren’t as much of a factor in the past.

This is the challenge I’m facing right now. I’ve got a product I designed a year ago and put on the shelf, ironically enough, because of pricing issues. My profit margins appeared to be just pennies if I was going to price my product competitively. However, it’s such a fun product that I’m revisitng the business model again. Has anything changed? Yes, me! I’ve come to realize that I’m offering something different, so I don’t necessarily have to reflect the pricing structure of the big, established brands. In fact, not doing so will help to differentiate my product even further.

Another option would be to find a way to bundle my new product with some other product(s) that are inexpensive for me to buy, but carry a higher perceived value. We used to do this all the time at another company I worked for. We could package our products with cassettes or CDs that we bought for less than $1, but carried a list price of $9.99 & $14.99. Suddenly, our $20 product was worth $40 or $50 as a package, but our cost was only a couple dollars more than the single product alone.

So, with a couple more hurdles to leap, it looks like I may be able to finally roll out this fun product. So, what’s my pricing strategy going to be? I’ll be using both of the above strategies – x% markup initially and find items to bundle to improve value and profitability. Wish me luck!

One more thought, I’d rather price a bit to high initially than too low. Why? It’s harder to increase your pricing without a good reason for your customers – especially if your product is fairly new (see iPhone). Permanent price reductions (not temporary discounts) are always welcome by customers.

Do you have a set pricing strategy? Feel free to add a comment and share it with us.