Importance of Pricing in Business

Importance of Pricing in Business

How you set your prices can have a host of implications for your business. Not every price you set needs to maximize your margins. Many small businesses use price to compete, change market share, or create different revenue scenarios. Understanding how pricing affects your business model, not just your bottom line, will help you better choose price levels.


Pricing is important since it defines the value that makes it worth it for you to make and for your customers to use your product. It is the tangible price point that lets customers know whether it is worth their time and investment.


When it comes to putting a price tag on the final product, it's not uncommon for leaders of small and medium-sized businesses to miss the importance of spending time to figure out the right pricing model. That is to say, pricing becomes more of a reflection of their costs, or competitors' price tags than a function of how to strategically increase a company's own profitability.


Unfortunately, many business owners simply don't realize that pricing is, in fact, THE most vital component when it comes to making money.

Price your items poorly, and you're leaving money on the table. Price your items well, and you'll beat out your competition without diminishing the perceived quality of your brand.


How much do you think a 10% increase can mean to your bottom line? 



For the most part, customers will choose a lower-priced item over a higher-priced item that they perceive to be of comparable value. Charging a low price encourages many customers to buy your products and services by making them affordable and offering them a reason to choose your products over those of your competitors. Charging a fair price does not necessarily mean charging the lowest possible price. If your product is of high quality, you may develop a marketing strategy based on charging more than inferior products but relatively little for such a high-quality item.

Value pricing is as much of a science as it is a strategy. Basically, you're trying to determine what's the most someone will pay for your product or service. How much will the market bear?


You could use gut instinct, but really, is that enough in the business world? A “Spidey Sense” is critical, but your intuition can't provide you with data and analytics to support your instinctual decisions, and it certainly won't provide you with metrics to help you measure your success or opportunities. Gut instinct is valuable, but it really doesn't belong anywhere around your books.


On the other hand, you could seek tools that provide you with quantifiable data, which allows you to see the true cost of each customer or job, which helps you find hidden value, hidden costs and measure the true financial impact of your decisions.


There is a lot already written by value price experts on value pricing best practices. We suggest you also get a clearer picture of expenses and costs; you'll be better able to understand where your opportunities lie.


Evaluate your competitors' prices in order to develop a pricing strategy that will help your business succeed. Look at the amount they are charging, as well as the tangible and intangible value that they offer, and position your offerings relative to their products and services. For example, if you offer Web design and your selling point is simplicity, charge less than competitors who offer complex packages.