Is Your Price Right?

A decade ago, if you were the only one in your market selling Whiz Bangs, you had some leeway in setting the price. But now that customers can find out over the Internet what sellers across the country (and beyond) are charging for Whiz Bangs, getting the price right is a lot more complicated.

The Sweet Spot

If you set prices for your goods or services too low, you won't be able to cover your costs or turn a profit. If you set prices too high, you may not achieve the sales volume you need to be profitable. The sweet spot is the price that fits your and your customers' needs.

Market Research

Is your potential market big enough to support the sales you need? If you're going into an established market, find out all you can about your competition, including pricing, although setting prices based only on your competitor's price is a mistake.

Cost Plus Plus

Start the pricing process by calculating the cost of producing the product or service. Add operational expenses, including such things as your telephone bill, taxes, and technical support. Build in enough margin to cover marketing and advertising costs. Analyzing your breakeven point (the volume of sales at which total revenue equals total costs) is also useful in determining the right price.

Know Your Niche

Does a low price, high volume strategy make the most sense? Or are you better off charging more and adding value? Knowing your competitors' strengths and weaknesses can help you fine-tune your pricing strategy. For example, you may be able to establish a competitive edge by providing excellent customer service. Just remember that doing so will add to your costs.

Price and Profile

The more competitive the marketplace is, the less leeway you generally will have as far as pricing goes. If what you're selling is unique, on the other hand, you may be able to charge a premium. Just make sure that your product or service is unique in a way that is meaningful -- and recognizable -- to your potential customers.