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Post: Effective Pricing Strategies for SMBs


You need to deliver value to your customers, but your customers also need to deliver value to you.  This means that you need to use the right pricing strategies and apply them effectively.  Here are some tips to help.

Make sure you understand your customer base

In business, just about everything starts with knowing your customer base.  All customers matter but, realistically, some matter a lot more than others.  It’s therefore vital to build your pricing strategies around the needs and wants of your most important customers.

For example, if you’re a regular local business, then your key customers are local people.  You may also sell to people visiting your town but that isn’t your core market.  By contrast, if you’re a tourist-focused business, then your key customers will be tourists rather than locals.

Keep your collection strategy in mind

Every time you consider a pricing strategy, think about the practicalities of taking payment.  If you’re handling cash, think very carefully about the security challenges.  If you’re taking cards or using ewallets, make sure that you understand the rules for their use.

If you’re taking payment in arrears, make sure that you have a robust invoicing system in place.  You might also want to think about linking up with a third-party collections service as a last-ditch option.  Even if you’re taking payment up-front, remember that many goods can be returned for a refund within a certain time-frame.

Keep your pricing strategy simple and sustainable

For most SMBs, the cost-plus pricing model is really the only sensible way to go.  Cost-plus pricing is exactly what it sounds like.  You factor in all the costs of creating your product/service and then add extra on top for your profit.

Depending on your industry, you may need to refine this slightly.  For example, service industries might need to work out their costs per hour and charge on an hourly rate.  Food and beverage industries often need to charge per item, but factor in costs which are determined per hour.  The key point, however, is to keep everything as simple as possible.

Be very careful about being driven into “competitor pricing”.  This tends to lead to companies trying to undercut each other.  It’s highly unlikely to be sustainable in the long term.  Similarly, it’s usually best for SMBs to avoid more complex pricing strategies like psychological pricing.  These can backfire badly if you get them wrong.

Be transparent about your pricing

Modern consumers want clear, succinct information quickly.  Either you give it to them or they’ll go to one of your competitors who will.  Put as much pricing as you can right beside the relevant product/service.  If you can’t put everything there, then guide them clearly to the additional information.  Put it online if at all possible.

If you genuinely can’t put specific pricing information online, then at least try to give some general guidance.  As a minimum, let customers know what factors will influence the price they pay (e.g. size, weight, materials used).  Offer them the option to get a quote sent to them by email.  That way they know they won’t have to deal with a human salesperson.

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