Setting the “right” price for your product or service can dramatically enhance your business’ bottomline.  As you embark on this adventure consider these factors:  your customers reactions; your competition; the economy; and profit.  Each of these factors play a role in determining the best pricing method and strategy to move your product or service.  Your objective is to meet customer demand, monitor your competition and the economy, and produce satisfactory profits. 

As strange as it may seem, your customers  will smirk at prices that are too low almost as much as they do at prices that are too high!  Why?  Unfortunately, consumers tend to equate poor quality, value, and inferior design with low prices.  While setting the prices for your business, remember that one man’s junk is another man’s treasure. 

Your prices should reflect how well you know your customers.  Are they affluent people that demand high quality merchandise, personalized service, and other exclusive amenities?  Or are they budget conscious people who want good quality merchandise at a fair price?   In either case, you must stay in touch with them to make sure that your prices, quality, and service are on target at all times. 

Have you noticed that your prices are not comparable to your competitors?  Checking out your competitors prices will aid you in setting the appropriate price for your product/service.  If your prices are lower than your competitors it means that your sales volume is high, but you profit margin is suffering.  If your prices are higher, you are probably losing sales.  To properly assess your pricing strategy you will need to review their added value services in addition to their prices.  Keep in mind that additional services such as gift wrapping, valet parking, delivery, etc. add value to products and services, and thus, mandate a higher price. 

The economy has an impact on your prices as well.  If there’s a recession or depression, customers tend to “penny pinch” to make every dollar count.  However, as the economy improves, they are less leery, and consequently, will pay higher prices.  An astute business owner will be cognizant of these economic fluctuations and change their prices accordingly to meet customer expectations and remain competitive. 

If your profit margin is low you are headed for disaster.  Your prices should be set high enough to cover the cost of goods and services, overhead costs, and provide a sufficient profit.  The amount of your profit is dependent on your gross margin, or markup.  This is the difference between the cost and the selling price of the goods or services sold.  The higher the markup , the greater your profit per sale.  However, this doesn’t necessarily mean that your overall profits will be higher.  Why?  Because higher markups usually result in reduced sales.  That’s why discount stores are able to make healthy profits despite lower-than-average markups; their sales volumes is higher. 

As you set your price, your ultimate goal should be to be fair, but profitable.  If you make a conscious effort to review these factors you will be successful at setting the “right” price. 

Tracey Lowrance is the President/CEO of OutSource ConneXion, a full service marketing communications firm that offers marketing communications, public relations, media advertising, and employee/community relations expertise in the Atlanta area.