10 Pricing strategies for entrepreneurs

5104 reads

Pricing problems are not rare, and among all issues faced by startups, pricing is right on top. Though there is no perfect pricing method, I am sharing 10 pricing strategies for startups below:

1. Cost-led pricing

This is the most common pricing mechanism. Start by calculating all the costs involved in manufacturing the product or delivering the service (variable costs), add the other expenses (fixed expenses), and add certain margin (expected profit) to arrive at the pricing. The pitfall of this method is its practically impossible to determine all costs as well as predict volumes required to recover them. Always keep a margin of 5-10% to be safe, rather than run into losses.

2. Competition-led pricing

For a like to like product or service, determine what is the competition offering to customers and match them. While pricing is an important factor for customers, you should have a compelling reason for your customers to buy from you apart from the pricing factor. Once you are aware of competition pricing, you may also decide to sell either too low or too high, to create a differentiation for your company.

3. Customer-led pricing

Ask your customer what he or she is willing to pay, and offer it at that price. Absurd as it may sound, this is one of the most efficient pricing mechanism (think about how you buy ads on google!).

4. Loss leader

If you cannot match your large competitors marketing muscle, then hurt them a little by offering low priced items. This will help you attract some customers, and increase your base. However, be careful - always enter this game knowing when and how to get out.

5. Introductory offer

If you are confident your customers will love you once they try your products or services, then start with introductory offers. This maybe free or heavily discounted - typically for 15-30 days after launch or for first 100 customers etc.

6. Skimming

Start as high as possible and keep coming down gradually. At the beginning of your venture, you may not know how much your customers will pay and how many will customers you will get. It is always good to recover maximum value at an early stage to ensure you remain cash flow positive.

7. Odd numbers

Bata's strategy of pricing shoes at Rs 499 rather than Rs 500 has got a lot to do with consumer psychology rather than MBA methods! Play with your price, keep them at odd numbers which will ensure customer recall!

8. One number

Remember the dollar store, where everything is priced at 1 dollar. This strategy will be profitable if you know what are the average prices and what will be the mix of items you are selling.

9. Bundled pricing

If you can bundle a set of products or services, with a perceived value higher than what customers pay for, it may increase your volumes and reduce your overheads per unit.

10. Range pricing

For a category of products, you can create a range starting from Rs 100 and go up to Rs 10000. This will allow you to sell the range of your company products or services to different category of customers.

The biggest problem in pricing at an early stage company is uncertainty - about customer traction, volume, orders, payments etc. Many entrepreneurs also feel shy about asking for money against services, and quite literally are taken for a free ride!

As an entrepreneur, we have to experiment with pricing to overcome our fears. In fact, the same product can be offered to different customers at a different price!

How? Imagine - whats the probability of getting 1 customer in 1 month - 1% (assuming 1 in every 100 prospect), whats the probability of getting 2 customers in 1 month - 1% * 1% = 0.01%, whats the probability that they will get to know each other and also share the pricing details = 1% * 1% * 1% = do your maths!

This article was originally published on:

Trending

78
adamgrant's picture

The Two Traits of the Best Problem-Solving Teams

You want teams that are cognitively diverse and psychologically safe. A variety of thinking styles—coupled with the freedom to take risks without being punished—enables groups to generate, test, and implement creative ideas.Imagine you are a fly on
99
changethis's picture

Making ‘Agile’ Business as Usual

“There is more to Agility than putting lipstick on a pig. Organizations that attempt to migrate to Agile approaches need to take accountability for their 'inner pig.' Any sector can espouse Agile practices, such as SCRUMS, Sprints, and Stand-ups.
96
danielhpink's picture

Things: The secrets of high standards and happiness

1. WHAT TO READ: Can you teach high standards? Each year, Amazon founder Jeff Bezos — whose current personal net worth exceeds the GDP of nearly 150 nations — writes a letter to shareholders. Most corporate missives are snoozers, but Bezos’s is
138
mashable's picture

Google just slashed the price on its massive storage plans with Google One upgrade

Google's storage plans are getting cheaper. The company has launched a new storage plan called Google One, which offers significantly better deals than Google Drive storage plans. There's no need to switch, because all current Drive storage
400
changethis's picture

Start Imagining a Future of Human + Machine

“In the first wave of transformation, businesses standardized processes. Think Henry Ford and the assembly line, where steps in the overall process were broken down, measured, and optimized to achieve gains in efficiency. The second wave of
162
jackcanfield's picture

Try This Simple Night Meditation Called "The Evening Review"

Successful people maintain a positive focus in life no matter what is going on around them. They stay focused on their past successes rather than their past failures, and on the next action steps that will get them closer to the fulfillment of their
144
davecrenshaw's picture

How far would you go for a friend?

I recently witnessed an act of compassion and friendship so unexpected, it moved me to tears. And it happened in a very unlikely place: Pelican Bay super-maximum security prison. I support a program called Defy Ventures, an organization that works
144
johnsullivan's picture

Here We Go Again – LinkedIn Updates Its User Agreement

There are times in my life when I hate that I am right about something. Like the time I thought an employee was stealing from my store back in the day and two days later I caught them doing just...
278
changethis's picture

How Women Rise: Helping Women Change the Behaviors that Get in Their Way

“It’s not surprising that many of the behaviors that hold men and women back would be different. After all, women often have very different experiences at work. And experience shapes habits and responses.Familiar habits and responses may feel