Jean L. Serio

Aside from creating a product or service customers want, two of the main objectives of a business are to create success and to maximize profitability. And pricing your products and services, appropriately, is one of the best ways to make that happen.

Unfortunately, according to lenders and groups like the U.S. Small Business Administration, one of the top reasons small businesses fail: Incorrect Pricing. Lack of experience may cause a small business to charge much less than a product or service is worth. The owner thinking "volume in sales" will bring the numbers of customers they need; creating profitability. Others, worried their products or services won't sell, price them lower than competition, thinking customers will bypass competition and buy from them at the lower price.

Pricing Guidelines:

* Price is important, but should not drive your products. Customers are fickle and can easily move to businesses with even lower prices.

* Lower pricing creates marginal profits, and lessons your ability to develop long-term profitability.

* Improper pricing can create instability, where you're unable to make ends meet or keep your business successfully operating.

* Never purchase products, or services, you cannot obtain adequate profit from. If you have some, phase them out.

* Never offer more than a handful of products with a set "price cycle". For example - holiday merchandise. Unless your business caters strictly to the sale of holiday items, it's best not to allow your business the ups and downs and instability of too many product or service cycles.

* It may occasionally be necessary to "reprice" products or services temporarily, in order to compete with "penetration pricing". This is when a competitor prices something considerabily lower for a brief advertised time.

* When a product has reached obsolescense, the end of it's cycle, isn't selling, or you've over-bought, it's time to lower the price and get rid of it.

A Rule of Thumb: "charge what the market will bear".

If you've never been in business, or are new at it, "charging what the market will bear" may harsh and wrong.

What does this statement actually mean?

Every product, or service, has a price-point beyond which you should not stray That price-point - believe it or not - is often established by the consumer. And stays at that price-point until the consumer is no longer willing to pay it.

For instance, ten years ago, a computer and a printer were selling for $800-$1000. Now, unless a company is running a sale, or you buy a used one, the average printer price is $99; "$395+ for a computer. Why? Because companies slowly raise prices until they determine at what point a customer balks or complains. And refuses to buy. Now, dozens of companies manufacture computers. So customers have dozens of computer choices, and dozens of price points.

On the other hand, prices might suddenly escalate because consumers are purchasing certain products in record numbers. Because that product is in such demand, companies can keep raising prices - over and beyond - what the product is actually worth or would ordinarily sell for.

6 Ways to Discover How Much Customers Will Pay For Your Services or Products:

1) Check your competitors prices; 2) Ask for help with pricing from vendors you buy from; 3) Research trade and professional magazines; 4) Do on and offline customer surveys; 5) Read marketing and advertising journals; 6) Talk to the manufacturer.

Understanding the price cycle of products:

While holiday and other seasonal items like summer and fall products have a specific cycle, you may be surprised to know most products have a cycle. For instance, a new product is always priced higher than a product that's been around for six months or a year. By years end, that new product is now old and been replaced by another "new and improved" model. Products in this category include CD's, movie and music videos, computers and software, cel phones, cars, shoes and clothing.

On the other hand, comsumers can bring about the end of a product's life. This happens when consumers are tired of a product. Now they want something new and different. But not necessarily a "new and improved" version of the original. For instance, a particular item holds a price-point effectively for several years and suddenly sales "bottom out". Usually because the customer has, in effect, forced the end of that products life because they're no longer interested in it.

Pricing for Services:

With services such as physical, or massage, therapy, chiropractic services, where a client receives a service taking an hour, there may be an established professional hourly rate. To discover whether those rates are right for you, consider your overhead for: leasing; utilities; insurance; products used to provide the service; what it takes to make, sell or deliver that service; also include estimated tax liabilities. Once you've calculated this, you'll know how much income your business must generate monthly "to break even" and pay those bills.

That done, determine how many clients you can properly see daily, including a lunch and personal breaks for you. How many weekly, monthly? If you've determined how much income is needed to pay your overhead, divide the client number into the total overhead to determine what to charge each client for overhead.

Add to that figure your our hourly rate to pay yourself. If competition is charging more, you should raise your rates to match, as long as you're giving clients good value or a similar type service.

Consultants:

Many consultants charge by the hour. From a financial standpoint, charging by the project or campaign is the best scenario. Also, have 2-3 organized programs to offer clients. Each program should be three tiered: one for clients with low, one for medium and one for clients with larger budgets. Or charge by the day, or the week. Each client contract should contain a time limit for each project; additional fees billed for extending beyond that.

Pricing Products:

Before you can price physical products appropriately, (this does not include the food service industry) you must know what your overhead is, the income you'll need to "break even" and pay all your bills. Knowing that, you're in a better position to determine whether your product mark-up should be triple, quadruple what you paid for it wholesale, or more.

In today's marketplace, it's good business to mark-up your merchandise 3-4 times what you paid wholesale for it. In some cases, depending upon the "perceived value" of the product, you can charge more. It's common practice for retailers of jewelry to mark it up 3-400%, furniture dealers to sell at least 300% over the wholesale price. Technically, this is "whatever the market will bear".

Also, bear in mind what competitor's are charging for the same, or similar, products. Does that price include things like warranties, installation and future customer service? Evaluate your ability to market your products. If the competition is bigger and financially capable of setting the price standard in your community, pricing slightly lower may be necessary until you gain a loyal customer base and can slowly raise prices.

A good book on pricing is the bestseller: "The Art of Pricing: How To Find The Hidden Profits To Grow Your Business" by Rafi Mohammed

Jean L. Serio, Copyright 2007. Are you one of the 1.2 million women tired of working the 9-5 grind, sick of worrying about making ends meet? As you know, starting a business still remains one of the best strategies for providing you financial freedom. Discover how to start a business, today, with your own step-by-step Action Plan. Plus to ensure you receive all the details FREE, and learn how to harness the power and resources you need to start, first sign up for your Free Newsletter "Start Up a Business Today" and receive your Bonus Report "5 Mistakes Women Make Starting a Biz". Go to: www.womensmarketingandbusinessnetwork.com "We help you make it happen!"