Every entrepreneur has to face the dilemma of how much to charge for their product or service, and the answer isn’t always obvious. On one hand, you can charge more money and generate less demand, but on the other hand, you can charge less money and generate more demand from customers who value your product or service highly. As you take your first steps into the world of business, use these tips to decide what your pricing strategy should be in order to maximize profitability in the long term.
Charging And Selling Are Two Different Things
The goal of a business is not to charge more for a product, but to sell more products. Charging less for a product is an effective way to get more customers because it creates the opportunity for everyone to buy the product. Charging more for a product turns away some potential buyers who can’t afford the product, which in turn hurts the company and subsequently affects its bottom line….OR DOES IT?
Not necessarily. Turning down people who can’t afford your product or service does not necessarily mean that it will hurt your company if you carefully analyze the situation, but first let’s talk about charging versus selling as these are important and are slightly different concepts. At least that’s the way I see it!
When you have quality, you won’t have an issue CHARGING for what you think your product or service is worth. On the other hand, when you need to try and convince someone that your product is good, you are SELLING.
Of course, if the new potential customers doesn’t know you, you will have to prove yourself or “sell” yourself or your product that it is worth it. But once they are aware and see the value, then the only thing left to do is CHARGE, for what you are providing.
You probably guessed that selling is much easier if the price is lower but that’s not always the case. It’s all about perception. If you charge more, the potential customer will see more value. If you charge less, the potential customer might not take you or your product seriously and he/she will not value your product or service as much, which can ironically put you on the situation where you have to do more “SELLING.”
Charging More Leads to Fewer Customers
Yes, charging more for a product or service can lead to fewer customers. If you’re competing with other businesses that sell a similar product, charging more will make it difficult to attract new customers at first because they’ll be able to find another business that sells the same thing at a lower price. So you have to differentiate yourself from the rest. The goal here is to focus on quality, add-ons that elevate the value of your product and perfect your customer support and satisfaction.
Charging Less Leads to Lower Profits
Charging less for a product may lead to lower profits, but it also has its own set of benefits if you implement the correct strategy. There are many reasons why people choose to charge less for their products and services. Some people do so as a way to entice customers into buying more than one product in order to make up the difference in price; others use it as a way to differentiate themselves from competitors who charge higher prices but this will not always benefit you positively, if you solely focus on price dropping.
Price has a direct impact on purchasing behavior, and will affect your sales volume. If you set your prices too high, it’s likely you’ll lose customers to competitors who charge less. On the other hand, if you set your prices too low, profits are lower and you’re left with less capital to grow your business.
If you want to go with the “price competitiveness” route, it’s best to find that sweet spot where pricing is at a level that attracts customers without completely cutting into profits and look for ways to make up the difference by providing upsells that the customers can’t resist, while bringing up the value for them.
Charging More Leads to Greater Success
Charging more for a product can lead to greater success. It is natural for consumers to want the best product for their money, and higher prices are often associated with high-quality products. In addition, charging more for a product allows for better customer service, faster turnaround times, and increased profit margins. All of these factors make it more likely that customers will return to purchase from you again in the future.
Charging more for a product also creates a sense of value around your business. Potential customers will recognize that you offer high-quality products, and they’ll be more willing to purchase from you, even if that means paying a little extra.
When To Offer Discounts
Offering discounts is a great way to lure in customers, but you want to be careful not to overdo it. If your product has a high price point, you should avoid offering frequent discounts. Doing so can make your product seem less valuable and more like a bargain. If your product has a low price point and offers enough value, then by all means, offer frequent discounts!
Discounts are also a good way to create a sense of urgency and raise demand, especially during slow seasons. People love getting something for free but just be careful how you implement your strategy and don’t be afraid to give a discount or some freebies when the time is right; eg. when you need to introduce a new product or need testimonials!
Conclusion
In conclusion, it may take time to attract new customers, but if you have value in what you are providing they will see that it is worth paying more. Pricing a product can be difficult as there are pros and cons to either route you choose but always strive for quality; the customers will come.
