How To Price Your Startup's Product or Service

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By Grace Sales (Founder, CardWIX) Perhaps one of the trickiest part of launching a business is pricing your product or service.

Before launching my business, I did painful weeks of research before settling with my current pricing. During my research, the range of pricing for my industry came as a surprise. I found several companies that offer cutthroat prices.

I then asked myself -- where do I draw the line on pricing my product in terms of sustainability? Six Guidelines For Pricing Your Product Or Service Pricing Tip #1 -- Ask The Market.

Think about the demographics of your market. Is your target market able and willing to buy? You are able to buy because the price fits your budget. You are willing to buy if there is a need and it answers the question “what’s in it for me?” Find people who want to save time, want to cut down on cost, on a deadline, need to increase bottom line or who are curious. Ask them how much they are willing to pay for your product or service.

Create a five-question survey through SurveyMonkey, send a one-question text message to your friends, meet with people who have done it and just pick their brain, or call someone whom you think can help you fix your pricing. However, make sure the people you ask represent your target market.

Pricing Tip #2 -- Pick Your Battle.

Direct competitors are those that offer similar service or product in your category. Indirect competitors are those that are outside your category but provide the same service that satisfies the same need. Know the difference and then study their pricing models carefully. You can create tables so you can study carefully how they are pricing their products or service.

Remember, your pricing is not determined by how much you want to earn as an entrepreneur. The current pricing of your competitors is a reflection of how much the market is willing to pay for a similar product or service. Don’t ignore that valuable data.

Pricing Tip #3 -- Your Costs.

If you’re going to sell your widget per piece, do you know how much it costs to make each piece? If you are not going to sell it per piece, are you selling your product or service by batch, per gig, per gram, per letter, or per hour? Whatever you choose, pick a unit of sale then factor in all costs to make that product or service. By that, you have to calculate your direct and indirect costs. This depends on how you view certain costs to make your product.

For example, a marketing expense can be either direct or indirect. Other costs are labor, rent, utilities, hosting fees, back up, cost to make the website, credit card fees, and other expenses.

Pricing Tip #4 -- Know Your Survival Pricing.

A survival price is the lowest price you can charge and still stay in business. In your research and analysis, you should know the answers to these two questions: First, if your competitors lower their price, will you survive if you slash your price, too? Second, how low can you go with the price before you raise the white flag? Can you afford to do the freemium model route to gain traction? If not, can you slash 50% off without hurting your bottom line?

Tweaking your survival price directly affects your profit. You should also know your strengths and weaknesses and assess them against your competitors. This will help you stay in the game.

Pricing Tip #5 -- Know your optimum pricing.

An optimum price is the highest price you can charge to make the highest sales and net profit. If you’re first in the market, you might as well take advantage and make a lot of money in a short period of time. However, keep in mind that you’re also inviting new competitors who are willing to lower their price for a slice of the market.

The size of your market, demand and new competitors entering the market are just some of the reasons that will affect your pricing.

Pricing Tip #6 -- Be Flexible.

Your clients have different budgets. Some may prefer a pay-as-you go pricing without the extra costs while others are willing to pay more for the extra benefits or VIP treatment. Be flexible by offering different packages if this is something that appeals to your target market.

If you’re looking for ways to offset a reduced price, be creative and try to discover other revenue streams related to your business. If you can find a way to bring down the costs without sacrificing quality, then you can pass that benefit to your clients at a lower price.

Editor's note: Got a question for our guest blogger? Leave a message in the comments below. About the guest blogger: Grace Sales is the Founder of CardWiX, a web-based startup that saves time by transcribing data from business cards and other documents, and converting them into a spreadsheet format. Prior to CardWiX, she worked at a mid-sized law firm in New York and United Nations. She enjoys creating wacky videos on Microsoft Movie Maker, playing her DTX-III Yamaha drum set, and dreams of creating smartphone apps. Grace holds a Master of Laws in Law and Information Technology (LL.M.) degree from Stockholm University. Follow her on Twitter at @CardWiX.