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Price your product or service

Knowing the difference between cost and value can increase profitability:

  • the cost of your product or service is the amount you spend to produce it
  • the price is your financial reward for providing the product or service
  • the value is what your customer believes the product or service is worth to them

For example, the cost for a plumber to fix a burst pipe at a customer's home may be £5 for travel, materials costing £2.50 and an hour's labour at £10. However, the value of the service to the customer - who may have water leaking all over their house - is far greater than the £17.50 cost, so the plumber may decide to charge a total of £50.

Pricing should be in line with the value of the benefits that your business provides for its customers, while also bearing in mind the prices your competitors charge.

To maximise your profitability, find out:

  • what benefits your customers gain from using your product or service
  • the criteria your customers use for buying decisions - for example, speed of delivery, convenience or reliability
  • what value your customers place on receiving the benefits you provide

Wherever possible, set prices that reflect the value you provide - not just the cost.

Subjects covered in this guide

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Home

 

Sales and marketing

Pricing

 

Price your product or service

 

 

Introduction

 

Developing a pricing strategy

Current section

The difference between cost and value

 

Covering fixed and variable costs

 

Cost-plus versus value-based pricing

 

Different pricing tactics

 

Raising or lowering prices