Pricing is one of the most crucial decisions for small businesses. Set prices too high, and you might scare customers away. Set them too low, and you risk not making a profit. Let’s dive into how to set the perfect price for your products or services!
1. Understand Your Costs
Before setting a price, you need to know how much it costs to produce your product or deliver your service.
✅ Fixed costs: Rent, website fees, salaries, subscriptions (these stay the same).
✅ Variable costs: Materials, packaging, shipping, commissions (these change based on sales volume).
✅ Your time: For services, calculate how much your time is worth.
💡 Example: If you make handmade candles, factor in wax, wicks, jars, scents, packaging, and your time.
2. Research Competitors
See what others in your niche are charging.
🔹 Identify 3-5 competitors offering similar products or services.
🔹 Compare prices, offers, and quality.
🔹 Find your edge: Do you offer better quality, faster delivery, or unique features?
👉 Tip: If you provide more value (e.g., eco-friendly materials or custom options), you can justify a higher price.
3. Choose a Pricing Strategy
Pick a strategy that fits your business:
✨ Cost-Plus Pricing: Calculate costs, then add a percentage for profit.
(Example: If a product costs $10 to make, and you want a 50% profit, the price would be $15.)
✨ Value-Based Pricing: Set prices based on what customers perceive the product is worth.
(Example: A handmade eco-friendly candle might cost $8 to make but sell for $25 because of its premium appeal.)
✨ Competitive Pricing: Match or slightly adjust based on competitor prices.
(Example: Sell your custom jewelry for $5 less than similar stores to attract buyers.)
✨ Penetration Pricing: Start with lower prices to attract customers, then gradually increase them.
(Example: Launch an online course for $50, then raise it to $100 after gaining reviews.)
4. Factor in Profit Margin
Your business needs to make money — otherwise, it’s just an expensive hobby.
✅ Profit margin formula:
Selling Price = Total Costs + Desired Profit Margin
🎯 Ideal margins:
- Products: 30-50% markup
- Services: 50-70% markup
- Digital products: 70%+ (lower production costs)
💡 Example:
- Cost to make a handmade candle: $7
- Profit margin: 50%
- Selling price: $7 + ($7 × 0.5) = $10.50
5. Test and Adjust
Your first price isn’t permanent — test and adapt!
✅ Track sales: Are customers buying or hesitating?
✅ Gather feedback: Ask if the price matches the value.
✅ Monitor profits: Ensure you cover costs and make a healthy profit.
👉 Tip: If sales are slow, avoid jumping to discounts. Instead, highlight your value better.
6. Use Psychological Pricing
Small tweaks can make your price feel more attractive:
- Charm pricing: $9.99 feels cheaper than $10.00.
- Bundle pricing: Pair complementary products together with a slight discount (e.g., candle + lighter).
- Premium pricing: Higher prices can create a “luxury” perception if your branding supports it.
- Free shipping: A $25 product with free shipping feels better than a $20 product with $5 shipping.
7. Offer Discounts Strategically
Discounts attract customers — but overusing them can lower your product’s value.
✨ Effective discount ideas:
- First-time buyer deals: 10% off the first purchase.
- Bundles: Buy 2, get 1 free.
- Seasonal sales: Black Friday, holiday promotions.
- Loyalty rewards: 10% off after 5 purchases.
👉 Warning: Avoid constant discounts — it trains customers to wait for sales.
8. Review Your Prices Regularly
Costs change — your prices should, too.
✅ Check prices every 6 months: Review costs, competitors, and demand.
✅ Raise prices gradually: Big jumps scare customers away.
✅ Explain price increases: Frame it around improved quality, service, or rising material costs.