The 4 P’s of Marketing: Price

Last week we talked about product and now we move to price. As a small business owner, the hardest thing I ever do is price my product. Pricing is difficult because you are trying to balance a few things: costs, profit, and customers.

1. Costs: If you are doing something as a hobby, it might be better to not count the costs of making your product. It is absolutely fine to do something on the side and do it for fun. Maybe that is knitting or photography. But if you ever want to grow it into a business, you must start accounting for costs sooner than later. Some businesses like a restaurant have lots of costs, product, labor, housing. Some businesses like mine have very few costs.

   The cost I most often see business owners ignore is his/her labor. If you make a widget and sell it for fun, counting your time is not essential. If you want to make it into a business, you should start checking your time. You will probably have more time in a product than you think and it may turn your hourly rate per product is in the few cents.

2. Profit: One of the goals of pricing is to maximize profit. A question to ask is: How much can I charge? Making a profit is a good thing but the amount of profit has a lot to do with what you are selling and how. I would suggest looking for industry standards to look at what profit margins are being generated by your competitors. But with a higher profit margin comes benefits like being able to retain talent and keep your business running smoothly. One of the biggest factors in deciding profit should be the next point.
3. Customers: How many customers do you want? Something to think about when considering pricing is how many customers do you want to work with at a time. Here are two examples: Little Caesars sells lots of pizza at a razor thin price model. A local high-end pizza shop sells a lot fewer pizzas but charge a lot more and should have a much higher profit margin. Which end of the spectrum do you want to be on? You can sell Lexuses or you can sell Fords and the volume is going to be very different but when you do that, you need to account for your profit margin. Very few people are like Apple and sell a nearly ubiquitous product and have giant profit margins.

There is a lot more to say about pricing but there are better people than me to talk about it. One source is the Businessology show, this episode in particular talks about Value Pricing.

Marketers can help you determine pricing with surveys and customer feedback. But we can also be a cost to account for in your pricing. Pricing is one of the things that should be constantly evaluated and changed based on the current situation of demand and costs.

Read on Product here. 

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