Linking price to value

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How much do your customers value what your business has to offer? Putting a price on what you sell can be one of the biggest challenges for any budding business. It’s not only going to play a critical role in your marketing strategy, but also potentially determine the viability and profitability of your company.

The first thing to establish is whether your product or service is considered a commodity. If it’s, say, a mobile phone or even a driving lesson, the band in which you’re operating is going to be pretty narrow and largely outside your own control.

Many businesses do, however, have greater flexibility. You need to understand the perceived value of what you have to offer and work how to quantify it to a customer. Clearly, if something costs you £12 to produce, but its perceived value is only £10, you have an insurmountable obstacle in front of you. If, on the other hand, its perceived value is £100, you’ll see a lucrative market opening up.

My strong advice is not to give away years of experience or know-how for free. Be confident in the value you’re able to provide and communicate this clearly to the purchaser. And remember, you are selling benefits to them, rather than just features.

In addition you might want to break down the cost of any project work. If you give each component a separate price, it helps with recognition of the overall value; agree price and performance criteria up front. You don’t want to be negotiating at a later stage and will also have some benchmarks in place if you need to increase the price at any point; bill in a timely fashion. You want your customer to value and remember the work that you have done, so invoice when the project is fresh in their mind; avoid adding bells and whistles the client doesn’t want or need. You don’t want your profit margin eroded by setting a five-foot high jump for a three-foot price.

Speak to your client about price. If circumstances have changed and your cost of delivery has increased, be frank and speak to the customer at the earliest possible stage.

Getting your pricing right can have such a monumental effect on the success or failure of your business. It may be worth having a chat with your accountant who will be more than happy to help you work through your costings.