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Price your product or service

There are two basic methods of pricing your products and services: cost-plus and value-based pricing. The best choice depends on your type of business, what influences your customers to buy and the nature of your competition.

Cost-plus pricing

This takes the cost of producing your product or service and adds an amount that you need to make a profit. This is usually expressed as a percentage of the cost.

It is generally more suited to businesses that deal with large volumes or which operate in markets dominated by competition on price.

But cost-plus pricing ignores your image and market positioning. And hidden costs are easily forgotten, so your true profit per sale is often lower than you realise.

Value-based pricing

This focuses on the price you believe customers are willing to pay, based on the benefits your business offers them.

Value-based pricing depends on the strength of the benefits you can prove you offer to customers. See our guide on preparing to sell.

If you have clearly-defined benefits that give you an advantage over your competitors, you can charge according to the value you offer customers. While this approach can prove very profitable, it can alienate potential customers who are driven only by price and can also draw in new competitors.

Pricing services

When you put a value on your services, rather than working from a unit price, you will need to think carefully about the value of your expertise and other desirable aspects of your service, such as a fast response time or out-of-hours service.

For example, an IT technician who is able to resolve a problem in two hours will be worth more to the customer than one who takes two days. They would be able to charge more for their service, despite it taking fewer man hours.

Market research and looking at your competitors will help you to understand the level of service customers expect at your price point.

Subjects covered in this guide

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Sales and marketing

Pricing

 

Price your product or service

 

 

Introduction

 

Developing a pricing strategy

 

The difference between cost and value

 

Covering fixed and variable costs

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Cost-plus versus value-based pricing

 

Different pricing tactics

 

Raising or lowering prices