In the first part of this series, we talked about how to gather the data you need to determine what price you should charge. In the second part we’ll talk about how to finalize your pricing and how to communicate that pricing to your customers. Although the data collection process, as detailed in part one, can take time, it’s actually probably the easier part of setting price. Now comes the hard part, setting your prices and sticking to them.
Once you’ve crunched the numbers on what you need to make and assigned tentative prices for your products, you can compare those with your market research data. Sometimes you’ll find that you can charge more than you thought you could and still be competitive. Other times you’ll find that the prices may need to be adjusted downward slightly. The hope is that the highs and the lows will balance.
After the final adjustments are done, do one more set of calculations. There are two parts to this final bout of arithmetic. One part is to figure out if you can afford to and want to do quantity discounts and what those discounts will be. This set of calculations should also include what your minimum order quantity will be. For some people, it’s the minimum number of a product they need to make their minimum profit requirement. Other people may have very low minimums to try and differentiate themselves. Some shops will have set minimums and quantity discounts that are stated prominently in their pricing literature. Others may not advertise these minimums and discounts, but every shop should know what they are. The time to make pricing decisions is not when someone is standing in front of you asking. Those decisions should be made when there’s no pressure and you can keep your income goals clearly in front of you.
The second set of calculations to be done deals with your absolute lowest price. This is the rock bottom minimum you can charge and still make at least a small amount of profit. The hope is you will always be able to charge more than this number, but you should always know what your lowest price is and stick to it. Again, the time to make this decision is not when a potential customer is arguing with you, or when someone offers a huge job that is terribly tempting. Know your lowest price before you get into these situations, and make sure you don’t go below that price, no matter what the incentive.
Now that you’ve done this last set of calculations, you should have a final price for each product you offer, along with quantity discounts, if you intend to offer those, and a rock bottom minimum price below which you will not go. All this information now needs to be communicated to your customers. If you’re selling online, pricing information can be communicated in each product listing. If you’re running a brick and mortar shop, printed pricing can be offered with order forms. As a general rule, it’s a good idea not to make any mention of your rock bottom minimums in the pricing you release to the public. After all, it’s never a good sales tactic to let your customer know the minimum payment you’re prepared to accept.
Your pricing is now set, and you’re on to the really difficult part, holding firm on those prices. We’ll discuss that in part 3.