The Price is Right
Teacher: Steve Cartwright
Are you selling your services at a reasonable price or are you running around like a busy fool. There is no clear cut or agreed method of establishing a price for your services, however you should clearly aim to set your prices initially at a level that gives you the highest profits possible.
As the Internet has leveled the playing field to a large extent, especially amongst Web Designers, then selecting the right pricing strategy is becoming more and more important, as your competitors are not necessarily even in the same Country as yourself. Indeed to prove this point Website Designs LTD have used their reputation to sell their services to clients around the world.
Some people price by working out the costs and then applying overheads and a margin on top of this, indeed in my previous life within the construction industry this is exactly how we priced for many a multi-million dollar project. However even this method has its drawbacks, for example if your costs are low, does it automatically follow that your prices should be low too? And even working out your base costs is fraught with possible errors.
Another method of pricing is to set your price to what the market can bear, but there are no quick and easy calculations to calculate what this should be. Instead you need to understand your products and services and rate these against similar products and services in the marketplace. However you plan, your competitor pricing policy will have an effect on your own.
It is much more common to price yourself in bands of prices, or price ranges. The lowest price you should consider selling your services at is fixed by your costs. As a general rule you should never consider going below this, if you do your losing money before you start and that is not what business is about. Of course to every general rule there are exceptions and Website Designs have themselves taken on projects at a loss for purely marketing purposes. The highest price will be the highest price the market will bear without sales disappearing altogether. Between the two will be the price which will give the highest possible profits.
Adopting a prestige pricing policy usually means that you understand that you could probably make bigger profits if you lowered your prices, because you would subsequently sell more. However this policy is particularly attractive to many small businesses who don't want to over-trade, because if you sell more you may need to invest in better production facilities or employ more staff. This often results in having to raise finance to fund such expansion and can result in a much larger business, being harder to control. Although adopting a prestige pricing policy, may not give you the highest possible profits, it should give you an extremely acceptable living.
This is an extremely competitive area to operate in and you'll soon find out who your main competitors are, your marketing niche may soon be invaded by competitors offering lower prices, or a better service or indeed both. You need to allow for this competition if you adopt a prestige pricing policy, because no matter what your unique selling points are, they are unlikely to remain unique for long. You therefore need to either plan for reducing your price in the long term or concentrating other advantages and benefits until your own brand image is set.
to work out your lowest price.
So when should you use this price, as little as possible has got to be the answer, you should use this price as the absolute minimum that you are prepared to accept, and then only if there is no other possible work available. If this is the case and you have spare capacity in your business, then any contributions to your overheads should be considered as helpful.
However following this minimum pricing policy for too long a period, will inform your customers of this and then you will be forced to sell at this price as best you can. Raising or maintaining your prices can be extremely difficult if this happens.
you go lower than this.
your Service Compares to your Competitors.
If your service is perceived as favorable when compared like this, then you should be justified in charging a higher price, just don't be afraid of charging more than the competition. If your service really does have benefits, then the marketplace may well accept that your price should be higher.
Price Sensitive are your Customers.
Now as Computer Professionals, we all understand the amount of competition out there, especially if your in to building Web sites, a typical search on any search engine will result in millions and millions of web builders (potential competitors) being listed. If it is difficult to differentiate your services from this multitude, then this implies that the marketplace will react more strongly to price changes. If on the other hand your services can be differentiated from this multitude then the marketplace will be more resistant to price changes.
Price Conveys to your Customers.
you understand your target marketplace, you'll be halfway to
selecting the right price range for your services, there is no magic
formula, indeed an old acquaintance of mine once quoted "A free
market economy is geared up to getting the best possible service for
the lowest possible price, companies need to remain active to just
stand still in the marketplace or face ruin".
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