Price is the value attached to a product, so every pricing strategy should take into consideration market conditions, the target market, costs and the customers’ ability to pay.

Knowing when to draw the line on how low or high you can go on pricing can be tricky. 

Asking people to pay too much for your product means they stop buying.

But ask for too little makes people think your product is low quality, which affects both your sales and profit margins.

Your aim, therefore, should be to find a sweet spot between value and price – which, of course, is easier said than done.

How to set prices

One approach your small business might wish to take is to cost-oriented methods of pricing, such as:

  • Cost-plus pricing
  • Mark-up pricing
  • Break-even pricing

Another pricing technique is to use market-oriented pricing:

  • Perceived-value pricing
  • Going-rate pricing
  • Sealed-bid pricing

Whatever pricing method you want to use, it makes sense to follow this three-step approach:

  1. Add up the variable costs involved in bringing your product to market (raw materials, transport, labour, etc.)
  2. Add your fixed costs (rent, electricity, wages, etc)
  3. Set a profit margin (percentages work best)

The most important consideration when setting prices is that they should be sustainable for your small business. If your profit margins are too low, it will be hard to survive, let alone grow.