setting your small business
pricing strategy

Setting Your Foundation | 5 Minute Read

Of all the difficulties small business owners face, one of the most pressing and difficult to overcome is setting a pricing strategy. What do you charge for your products or services? This is not an easy question to answer.

No matter what you're selling, price is vitally important. Small changes in pricing can produce dramatic results. You may be losing revenue by under-charging for your products or services. Alternatively, you could be losing customers and sales by charging too much. As you can imagine, pricing is the factor that has the biggest impact to your bottom line.

An effective pricing strategy will not only help you sell your products or services today, but will also enable you to increase your profitability over the long-term. The key, however, is to understand the fundamentals of pricing and what value you offer to your target market.

An effective small business pricing strategy helps you:

  • Meet or exceed your revenue targets
  • Remain competitive in your market by pricing your products in relation to what your market will bear
  • Maintain or increase your market share
  • Build customer loyalty, so that your customers continue to buy from you no regardless of market changes
  • Retain your image and reputation as a company that offers quality products at an appropriate price


Be Objective

Create a detailed profile of your target customer with as much objective data as possible.

Be Understanding

Start pricing your products by understanding what your customers are willing to pay.


Decide from the beginning whether you prefer high sales volume or high profit margin.

Position Correctly

Use product positioning to explain to your customers the unique value you offer.

Keep an Eye on the Competition

Watch your competitors and use their pricing to help you set your own.


​Test different prices and pricing strategies to see what’s most effective for your customers.

Don’t Forget Costs

When setting prices, figure in your all of costs to make sure that you're making enough profit per sale.

Add Value

If customers feel your prices are too high, it's much better to add value and keep prices high than to decrease prices.

Avoid Dropping Prices

Only reduce prices permanently when you really need to and always explain to customers why you're doing it.

Stay Flexible

Keep listening to your market and stay flexible because pricing is an ongoing concern.

"Anyone can sell product by dropping their prices,
but it does not breed loyalty."
 – Simon Sinek


Not Being Realistic

Pricing your products based on what you think they're worth rather than what your target market thinks they're worth.

No Due Diligence

​Failure to research your target market well.

No Explanation

Raising or lowering your prices without giving any reason to your customers.

Not Keeping an Eye on the Competition

​Ignoring competitors and failing to understand the competitive landscape.

Under Valuing

Setting prices too low; thereby, giving your customers the feeling that your product is low quality.

Lack of Growth Anticipation

Basing prices completely on cost, which depends on sales volume and will scale as your business grows.

No Diversity

Thinking that all customers and markets are the same when it comes to prices.

Too Much Automation

​Setting it and forgetting it, rather than staying in tune with market changes and changes among your customers.

Picking the Wrong Battles

Trying to compete with major retailers who buy in bulk and therefore can afford to offer lower prices.​​​​

Not Putting Your Best Foot Forward

​Failing to convey your product's unique value to your customers.

additional considerations

Monitoring Your Pricing Strategy – It's difficult for any business to get their prices right the first time, no matter how well they know their customers, understand market conditions and calculate their own costs. As you roll out your pricing strategy, you will need to monitor your profits regularly and evaluate whether the prices you chose are appropriate or not. Key indicators to do this include:

Financial Statements – Keep a keen eye on sales and examine your financial statements carefully. Make sure that you're reaching the sales target you expected when you set your prices. In addition to looking at your overall sales results, also consider each product individually so that you can see whether its sales are lagging... potentially due to inappropriate pricing. 

Costs and Your Bottom Line – Consider each fixed and variable cost to determine how it affects your bottom line. See if there are ways to manage costs so that you can offer the right price that will earn you enough profit. One of the largest costs to consider is labor, which you'll want to watch to see if they're increasing or decreasing. Ideally, they should remain stable over time.

Customer Feedback – Get regular feedback from your customers about pricing. Take every opportunity you have to interact with your customers and get their feedback on every aspect of your business, especially pricing. Make it an ongoing part of your business operations.

Watch Competitors – Even after you've set your pricing, keep an eye on the competition and look for changes in their pricing and marketing. Monitor what your competition is selling and at what price. Try to glean what kind of sales your competitors are having. Try to gain feedback from your competitors' customers. One way to do this indirectly is to read online reviews and comments written by customers about your competitors'.

Continued Testing – Whenever you have an idea for a new price, offer or tactic, test it. You can test new offers and prices on new customers, as well as using A/B split testing. This is where you offer the same product at two price points to two different markets to see which outperforms the other.

Remember that pricing your products is one of the biggest decisions you’ll make – with a great deal of impact on your business. It's also something that's ongoing. Once you set prices, continue monitoring and experimenting with adjustments.

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