Pricing Considerations

Businesses of all size and type have to consider three main factors when selecting a price for their product or service.

  1. Their customers’ demand for the product or service
  2. Their competition’s pricing structures
  3. 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.

  1. How easy is it for your customers to obtain prices from your competitors?
  2. Do you have a large or a small number of competitors?
  3. If you price too low from the start, will it be too hard to raise your price?
  4. Is your product or service price-sensitive, including small changes in price, prices ending in “9” or “5” or the overuse of sales? Do you have industry information or your own data to guide you?
  5. Do your costs vary by customer? Accountants and financial documents provide meaningful insight.