{"id":11646,"date":"2024-02-16T15:32:31","date_gmt":"2024-02-16T15:32:31","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=11646"},"modified":"2024-09-15T15:11:55","modified_gmt":"2024-09-15T14:11:55","slug":"price-products-and-services-for-small-businesses","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/price-products-and-services-for-small-businesses\/","title":{"rendered":"How to price products and services for small businesses"},"content":{"rendered":"

There are several pricing strategies a business can adopt to bring its products or services to market. Some of these techniques include cost-plus, anchoring, and bundle pricing.\u00a0<\/span><\/p>\n

However, first, you need to calculate your cost per unit, check your competitor\u2019s prices, conduct consumer research, and work out your markup. You then need to monitor your prices and adjust them as things change.<\/span><\/p>\n

We\u2019ll take you through these key steps in this article, and explain the different strategies you can use to find a sustainable pricing model for your business.\u00a0<\/span><\/p>\n

Step 1. Calculate your costs<\/h3>\n

The first step to pricing your products or services is to calculate how much they cost you to make or provide. This will bring you to your cost per unit, which is vital to know to ensure that your business doesn\u2019t operate at a loss.<\/span><\/p>\n

You\u2019ll need to understand both your fixed and variable expenses to do this – on either a monthly or weekly basis for the easiest calculation. Fixed costs, such as insurance and rent, remain the same, regardless of your production output. Meanwhile, variable costs like raw materials and packing supplies depend on how much you buy and sell.\u00a0<\/span><\/p>\n

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For example, if your company sells soft drinks, your variable costs would be the ingredients, packaging and labelling fees. If you provide a service like hair styling, your variable costs would be the products you source from suppliers, such as shampoo and hair dye.\u00a0<\/span><\/p>\n

When should I register for VAT?<\/span><\/a>\n How to write a business plan<\/span><\/a>\n What tax does a limited company pay?<\/span><\/a>\n <\/p>\n

Your fixed costs would then be your business insurance, utilities, rent\/mortgage, and advertising. Once you\u2019ve found these numbers, simply add them all together and divide the total by the number of units you have (or estimate to sell per month) to get your cost per unit.\u00a0<\/span><\/p>\n

Using the soft drinks business as an example, your costs might look something like this:<\/span><\/p>\n

Monthly variable costs<\/b><\/p>\n

Ingredients: \u00a3120<\/span><\/p>\n

Packaging and labelling: \u00a360<\/span><\/p>\n

Total: \u00a3180<\/span><\/i><\/b><\/p>\n

Monthly fixed costs<\/b><\/p>\n

Insurance: \u00a320<\/span><\/p>\n

Utilities: \u00a3100<\/span><\/p>\n

Rent: \u00a3980<\/span><\/p>\n

Advertising: \u00a370<\/span><\/p>\n

Total: \u00a31,170<\/span><\/i><\/p>\n

Formula:<\/strong> (180 + 1170) \/ 500 units (monthly forecast) = \u00a32.70 per unit<\/span><\/p>\n

Step 2. Check your competitors’ prices<\/h3>\n

Next, you need to check what your competitors are charging for similar products or services. First, you need to ensure that you\u2019re analysing realistic competitors. They should be direct competitors that sell <\/span>comparable items.\u00a0<\/span><\/p>\n

For instance, if you sell all-natural soft drinks made from fresh, local ingredients, you might find suitable competitors in farm shops or independent retailers. By contrast, a brand like Coca-Cola wouldn\u2019t be a comparable competitor.\u00a0<\/span><\/p>\n

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You should also ensure that the competitors you\u2019re researching target a similar audience to yours and service the same geographical location. Find as many direct competitors as you can and note their price range, from cheapest to most expensive.\u00a0<\/span><\/p>\n

The purpose isn\u2019t merely to match their prices, but rather to work out where your prices sit among them, and determine a fair yet competitive product price that generates a sustainable profit for your business.\u00a0<\/span><\/p>\n

Step 3. Conduct consumer research<\/h3>\n

As well as checking what your competitors are doing, you need to understand your customers’ expectations. In other words, you should conduct thorough market research to gauge what your target audience expects products or services like yours to cost, and what they are willing to pay for them.\u00a0<\/span><\/p>\n

Simple ways to find this information are through methods like surveys, questionnaires, and focus groups.\u00a0<\/span><\/p>\n

It\u2019s essential to understand what your customers consider a fair price. Otherwise, your prices may be too high and you\u2019ll struggle to make sales. Alternatively, people might also be dubious of prices that are too low and end up choosing a competing brand over yours.<\/span><\/p>\n

Step 4. Work out your markup<\/h3>\n

Finally, you need to add a suitable markup. This is the profit your business will make. Your markup should be based on a combination of the following factors:<\/span><\/p>\n