5 steps to price for profit in your trade business
So your trade business is up and running, and you’re using do and charge or quoting or set pricing. But when using set pricing, how do you know what price to set?
Welcome to the obscure, sometimes murky, and sometimes scary world of pricing. If you are reading this, it’s probably because you are unsure of just how to price your products and services. You’re not alone.
Identifying the perfect price, ultimately relies on how much you understand about your market, and your target market and their behaviour. Pricing isn’t just about what else is in the market, but also about emotion and perception.
Here are some steps to help you navigate your way around setting your pricing:
Step One: You Need A Clear Revenue Goal
This is a necessary piece of your pricing puzzle and you should look at it every year, or quarterly, or even monthly. No matter what phase of business you are in, you need to know exactly the amount you plan to (and can realistically) do in sales.
Example: “I want to sell £10,000 a month in residential work.”
If your pricing model isn’t viable at £X price point, but you know the market won’t pay £XX, then you need to re evaluate.
Step Two: Understand Your True Cost Of Goods + Business
Your revenue goal will require you to look more deeply at your actual costs.
Example: You’ve got your £X price point which means, to reach your £10,000 a month revenue goal (example from above) you’ll need to sell X amount.
Questions To Ask Yourself:
– What is your tools and stock investment?
– Logistics, and tax cost?
– What are your storage or office costs?
– Don’t forget about marketing costs
– Everything that is included in your total cost to do business
Step Three: Understand Your Market
You’ve got a bold revenue goal, figured out how much you need to sell each month, and have worked out your actual costs to do business. Next, it’s time to look at your market perceptions and analyse how they fit into your pricing puzzle.
Questions to Ask Yourself:
– Do you understand what people think (not what you think)?
– Do you know what they think is valuable?
– Do you know what they are willing to pay for?
– What’s their value point?
– Do they see the value you put into this service?
Step Four: Test Your Market
Market testing should not be costly or lengthy. When you test your market, this should help you more easily clarify your top selling points, and your value perception of your brand and trade business.
Step Five: Get To Know Your Competition
Understand your competition across all mediums. Understand where the Pounds are being spent in your marketplace and work out where your trade business falls in this mix.
Question To Consider:
– Should you undercut your competition and make your pricing cheaper or value add to increase the perceived value of your product/service?
Setting your pricing can be quite an involved process. It requires clear goals and a clear understanding of the marketplace. If done properly, it will ensure that you create realistic, profitable pricing that will instantly up your revenue.