Finding the Right Price Structure for a Product or Service


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As a business owner, manager, or entrepreneur, one challenge you will face is choosing the right price structure for products and services. How much should you charge customers, and when does it make sense to offer a discount?

Balance between Price and ValuePrice Structure for Product or Service

When it comes to setting a price structure, there are several considerations you need to make. Often, the reaction is to raise prices to maximize profit margins. But, higher prices could potentially slow down sales, which will cut into your overall profits for the year.

On the other hand, dropping the prices too low can devalue the products and services that you are offering. Some businesses get caught in the trap of racing to the bottom in an attempt to box out the competition.

Business Expenses and Costs

How do the numbers work out for each unit that is sold? It is essential to look at the cost of running a business to ensure that you are bringing in enough to cover manufacturing and overhead expenses. Cost analysis helps you choose a decent profit margin to ensure that your business will succeed. Some new business owners mistakenly overlook administrative costs, such as transportation and rent. These monthly expenses need to be factored into the price of the product.

Know Your Market

The key to choosing the right price structure is to know your market and offer what they want. Get a good understanding of the industry to see how your business fits in the marketplace. Then, you can set your prices to stay on par with the rest of the industry.

You also need to consider the way your company is positioned in the marketplace. For example, if you market your company in the right way, you can distinguish your services as a step above the others. When customers know that they can expect a certain level of quality, then they will be willing to pay a little more.

Do you want to learn how to maximize your pricing structure and boost sales within your company? The foundation of business success is having strong leadership. Contact Jim McLaughlin for Leadership Development for Business Owners and Managers at: (951) 225-2179