Businesses of all size and type have to consider three main factors when selecting a price for their product or service.
- Their customersâ€™ demand for the product or service
- Their competitionâ€™s pricing structures
- Their own costs, both fixed and variable.
Small businesses, in comparison to larger organizations, generally have limited resources for studying and analyzing pricing options. Here are a few practical big picture questions to address when your small business is focusing on pricing issues.
- How easy is it for your customers to obtain prices from your competitors?
- Do you have a large or a small number of competitors?
- If you price too low from the start, will it be too hard to raise your price?
- Is your product or service price-sensitive, including small changes in price, prices ending in â€œ9â€ or â€œ5â€ or the overuse of sales? Do you have industry information or your own data to guide you?
- Do your costs vary by customer? Accountants and financial documents provide meaningful insight.