Price And Profit - Perfecting Your Pricing Strategy | Free Udemy Course

Of all the difficulties business owners and freelance service providers face, one of the most pressing and difficult to overcome is price.

What do you charge for your products or services? This is not an easy question to answer, but in this course, you're going to learn a variety of methods that will help you not only pick a price, but pick the right one.

No matter what you're selling, price is vitally important. Small changes in pricing can produce dramatic results.

You may be losing revenue you could be earning by under-charging for your products or services. Alternatively, you could be losing customers and sales by charging too much.

Pricing is the factor that has the largest impact on sales and profits.

Learning Objectives:

• Define your ideal customer

• Effectively research your competitors and market trends

• Position your product or service in your market

• Understand a variety of pricing strategies and learn which ones work best

• Create a system for monitoring the results of your pricing

• Understand when it's good to raise or lower prices

  
  

The first step in creating a sound pricing strategy is to gain an understanding of who your target market and customers are.

To do this, you need to create a profile that defines the segment of your customer base that is most likely to find value in the products or services that you offer.

You can't please everyone. It's not even possible to target everyone. Many businesses fail to create a profile such as this because they mistakenly believe that their products appeal to anyone.

However, when you define your target, you can then figure out exactly how to tailor your marketing message, boost your appeal, brand your company, and set prices accordingly.

When you know who your target customer is, you can understand how they feel about your company, and fashion your strategy accordingly.

Now that you know your customers, it's time to get to know your competitors.

You need to understand the competitive landscape in order to position your products and services, and thus price them appropriately.

You can also take advantage of your competitors' weaknesses by fulfilling a market need that they don't.

Finding Your Competitors

Again, you may already have an idea of who your main competitors are.

When seeking out competitors, you need to find not only existing competitors for your target market, but also keep an eye out for possible new competitors.

The competitive landscape is always changing.

Now that you understand your ideal customer and your competitive landscape, you can start positioning your product or service.

Positioning means creating an image of your company and its products or services in the minds of your existing and potential customers.

This is important because it's how you communicate the relevance and value of your product which is the key to pricing it appropriately.

Value vs. Price

We often use the words "value" and "price" inter-changeably but they actually mean two different things.

Value is the use that someone gets out of a product.

When you buy a piece of design software, it helps you design websites quickly and easily. This is the value that it offers you. Value is something that exists? at the end-user's side.

Value is also something that exists in the end-user's mind. Only the end-user can decide whether something is valuable for them or not.

If a customer determines that your design software didn't help them make their work easier, it has no value for them. Value is subjective.

Price, on the other hand, refers to the actual amount people pay for a product.

As you understand from working through this course so far, price can be anything. There are products with high prices that take virtually nothing to produce.

The price doesn't always reflect something tangible about the product.

Now that the foundations are in place, it's time to discuss the various pricing strategies you can use.

There are several pricing models commonly used to determine price.

Each one starts at a different point of the commodity exchange and determines price from there.

Cost-Plus Pricing

In the last module we discussed price vs. value. Another factor to consider is cost.

Cost refers to the amount you must spend to produce your product or carry out your service.

Cost-plus pricing is the method outlined above where you start by determining your costs and then add the additional amount for desired profit.

When considering cost, you have to take into account everything that goes into a product.

This includes:

• Raw materials. The plastic, wood, metal, ingredients, and so on that form the product.

  
  

• Labor. The time, work, energy and skill required to convert the raw materials into the finished product.

  
  

• Instruments of labor. Things that are needed by the product creator to create the product. These could be actual physical tools or premium software programs that require some investment in your part.

  
  

• Externalities/Overhead Costs. This category includes things not directly related to each product but to the operation of your business such as rent, insurance, employee benefits, and extra money to cover slow sales periods.

It's difficult for any company to get their prices right the first time, no matter how well they know their customers, understand market conditions and calculate their own costs.

As you roll out your pricing strategy, you will need to monitor your profits regularly and evaluate whether the prices you chose are appropriate or not.

Financial Statements

Keep a keen eye on sales and examine your financial statements carefully.

Make sure that you're reaching the sales target you expected when you set your prices.

In addition to looking at your overall sales results, you should also consider each product individually so that you can see whether one product's sales are flagging, possibly due to being priced inappropriately.

Costs and Your Bottom Line

Consider each fixed and variable cost in order to determine how it affects your bottom line.

See if there are ways to manage costs so that you can offer the right price that will earn you enough profit.

One of the largest costs to consider is labor.

Watch your labor costs to see if they're increasing or decreasing. Ideally, they should remain stable over time.

It's pretty much inevitable that there will be times when you need to adjust your pricing over time.

Your price changes should be determined by the analysis of your regular monitoring activities.

When you see changes, this may be telling you that it's time to adjust your prices.

You may choose to adjust prices because:

• A change in the market means your customers are willing to pay more or choosing to pay less.

• There is a change in how your company, brand and/or products are perceived in the market.

• There is a change in your competitors' pricing or positioning.

• Your product becomes more highly visible, which might mean that its price is compared more frequently.

• You want to change the sales volume.

• You have a new production cost, such as a rise in prices of labor, raw materials, shipping, etc.

  
  

Before you adjust your prices, you need to make a good, educated guess as to what impact it will have on your volume of sales and the profitability of each sale.

Rely on your knowledge about your customers and the market to make this prediction.

You should also carefully reconsider the value of your offering before making a price change.

A change in perceived value is a good opportunity to raise prices.

For example, a freelancer who now has a roster of big-name clients can raise his or her prices because the big-name clients raise his or her perceived value.

A retailer could raise the price of a product while adding some value to it, like a free accessory that comes with each purchase.

After working through this course, you have a great deal to think about and digest.

Remember that pricing your products is one of the biggest decisions with a great deal of impact on your business.

It's also something that's ongoing.

Once you set prices, continue monitoring and experimenting with adjustments.

You’ve Learned:

• Who your ideal customer is

• Under what market conditions you're operating

• The competitive landscape and the prices your competitors are offering

• How to position your product and the importance of value in determining prices

• How to create your own personalized pricing strategy for your specific industry and products

• A wealth of pricing techniques, including tactics you can use to influence buyer behavior

• How to monitor your pricing and set this system in place

• When and how to lower or raise prices.

Now, you're ready to take all that you've learned and put it into action to create the right prices for your products and services.

Make sure that all of your action steps have deadlines affixed so that you'll get them done, and good luck!