Building Your Business Plan: Part 9 – Pricing

9 mins read

This article is written to provide you with the tools required to assist with developing your Business Plan as it applies to Pricing.

In part 8 of this series, we discussed product or material sourcing. In this part of the series, let’s discuss how you are going to determine the price you will charge consumers for your products or services.

Please keep in mind while you are completing the downloadable form that you are not restricted by the space provided to write in, this can be easily readjusted as needed.

Section 8.0 – Pricing

Knowing what you are going to charge consumers for your products or services is determined by your business’s market, what your competitors are charging, what your target audience are willing to pay, what your suppliers are charging, and potential profit levels which you defined in previous sections of your Business Plan. Using these factors, you will be able to make a more informed decision on the pricing of your products and services. Please keep in mind that the initial pricing as defined in previous sections may vary from those you define in this section.

Make sure to not be greedy by overselling but don’t also undersell yourself. You need to establish what works best for your business and sometimes that includes being comfortable with taking a risk, especially if you are considering coming in at a lower price than your competitors.

A. What is your pricing strategy?

Now that you have determined who your suppliers are and what they are quoting to charge, you can incorporate this information along with the knowledge you obtained from previous sections to help determine your pricing strategy. Keeping with the ongoing knowledge exposure, you may want to look into websites such as Info Entrepreneurs, Consumer Reports, or Price Beam to support your decision.

Setting the right pricing strategy is critical to your business’s success and something worth understanding. Here are 7 Pricing Strategies you need to know:

1. Value-Based Pricing is based on how much your customer believes your business’s products and services are worth. This option is best for businesses that already stand out from the competition; however, it is less effective for truly new products, so you’ll want to be careful around this.

2. Competitive Pricing is strategically adjusting prices based on the competition. This option is best suited for businesses that don’t stand out against competition. The downside to this is that you may need to continuously monitor the competition, which can be a lot of work for smaller organizations.

3. Cost-Plus Pricing is based on the sum of overhead with desired profit. This option helps build trust because it is easy to communicate and justify pricing; however, it ignores branding and competition, which can lean on either side of a positive or negative outcome.

4. Penetration Pricing is strategically lowering prices to increase the number of customers your business has. This is a good option for when there are a lot of competitors in the market, however, it may attract bargain hunters who are customers that are searching for the best deal and are not loyal.

5. Demand Pricing is based on varying prices by location and the needs for a product or service (supply and demand). This helps overworked teams reduce workloads, however, it may alienate customers who miss out on deals.

6. Price Skimming is strategically setting a high price and lowering it as the market evolves. This option works well for a new product without many competitors, but the one downfall to this option is that it can make operations inefficient.

7. Tiered Pricing is based on different amounts or services. This is good for value-focused consumers and encourages customers to spend more; however, to use this option effectively, you must know your target audiences needs well.

B. What price will you charge for your products and services?

Setting a business goal is critical in deciding if you want to grow your market share, reach a new segment, or increase your revenue. Now that you have determined your business’s goal and pricing strategy, you can calculate what price you are going to charge for your products and services.

Remember the formula R=PxQ (Revenue = Price x Quantity)? You will use this to understand the optimal price to charge for each of your products and services in order to reasonably maximize your revenue and potential profit levels but also remain comparable or competitive to your competitors. This will also help you to determine pricing as you calculate the fixed and variable costs to determine how much you’ll need to break even.

C. How did you determine your prices for your products and services?

Using the information and considerations put forward to answer the questions so far, provide an explaination to your process on how you determined pricing your products and services.

D. How do your price(s) compare against the competitors?

After you have determined your prices, it is time to conduct a comparative analysis against your competitors. By doing this, you will have a visual of where your business stands compared to the marketplace. Here, you can begin further defining the pricing justification difference (if there is one).

E. Is your price based on quality, quantity, service, or environment to create a Unique Selling Position (USP)?

Answering this question is determined based on how you decided on prices for your products and services.

F. Will you be offering discounts, seasonal sales, or other incentives that affect profit?

How you answer this question is based on your pricing strategy and what will work best for your business.

With all the questions you have answered as they relate to your business’s pricing, you will have a clearer understanding of your business’s potential profits and success. Please stay tuned for part 10 of this series when we discuss Manufacturing Goods.

Download the Building Your Business Plan Part 9 – Reference & Guide (zip).

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Visit our Resource Library for all available downloads.

If you require assistance with any of the guides, forms or templates, please contact a BIG representative.

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