The price you decide to charge for your products or services can make or break your business.
David Hassell, CEO of employee feedback software provider 15Five, believes pricing can be one of the scariest decisions a business owner makes because of how much is riding on it.
"If price is out of line with the perceived value of the product or service, a competitor's product or a marketplace standard, there is a high likelihood that you are going to lose business," Hassell told BusinessNewsDaily.
Hassell said the pricing process can be difficult for businesses because it's not always clear what the optimal price is, especially if there aren't any competitors or points of reference in the marketplace.
"Pricing is not as much an objective thing as it is related to perceived value," he said. "If there is nothing to compare to, there is no generally accepted price."
Knowing how critical pricing is to a company's success, Hassell encourages new business owners to try a variety of price points to see which achieves the right balance between customer interest and company profitability.
"Pricing, like any part of product development, must go through an experimentation and learning phase," he said. "There's not as big of a consequence in the early stages to changing prices."
Hassell offers business owners five tips for making the pricing process a bit easier:
- Have a plan: Determine the marketplace standard that's going to be used to determine the cost, such as pricing based on marking up the cost of goods relative to a competitor's offer.
- Analyze: Conduct a pricing analysis to see how different pricing scenarios might affect the bottom line.
- Experiment: Testing, receiving feedback and refining are the keys to success. Strive to constantly learn and improve.
- Customer service: It is important to take care of initial customers. When raising prices, consider "grandfathering" early customers into the original, lower costs.
- Don't worry: It may take some time to figure out the optimal price, so don't worry about getting it right the first time.
Based in San Francisco, 15Five's software is designed to help improve transparency, efficiency and communication by asking employees to spend 15 minutes a week writing a feedback report that takes their manager no more than five minutes to read.