Choosing the right pricing structure is so important for the health of a small business.

The right pricing structure will satisfy both your customers and your bottom line.

The wrong pricing structure will make it hard for your small business to make sales and/or profits. Overprice and you will lose sales; underprice and you will lose profit.

Here are four common mistakes that small business owners make when setting prices for their products:

Not knowing your costs

How much does it cost to produce your products?

You need to know the answer.

By costs, we’re referring not just to materials, but also overheads like rent, electricity and wages.

If you don’t know how much money is invested into each product you sell, there’s a good chance you’ll price it too low.

Racing to the bottom

Some small businesses try to win customers by undercutting their rivals.

The problem with a race to the bottom, though, is that you just might win.

There’s nothing wrong with knowing how much your customers are charging; but don’t just copy their prices, because their input costs might be different to yours.

You should also remember that if customers visit your small business just because it has the lowest prices, they’ll move on the moment a rival unveils even lower prices.

There are better ways to differentiate yourself from your rivals, such as quality, customer service and marketing.

Offering discounts

It’s dangerous to give customers ‘one-off’ discounts, because now that the precedent has been set, they’ll probably demand the same price again.

If you feel you need to concede something to your customers, a better approach would be to offer a buy-in-bulk incentive or better delivery terms.

Failing to pass on cost increases

When your costs go up, your prices need to go up.

It’s common sense, but many small businesses are scared to raise prices because they fear it will cost them customers.

The problem with that approach, though, is that it not only costs you profits as your costs steadily increase, it really does cost you customers when, eventually, you make up for lost time by implementing a sizeable price rise.

Making regular, small price increases tends to work better than making occasional, big price increases.

Does your small business need help with its marketing? Contact Hunter & Scribe at [email protected] for more information.