jQuery UI Tooltip - Default functionality

Making Pricing Decisions for Your Online Home Business

Meet Deb Mason

Want to Receive Regular Newsletters?  Sign Up Here...

Please Note: This Site Receives Commissions From Affiliate Links And Third-Party Advertising. 

  1. eBizBAM Home
  2.  ›
  3. Starting a New Business
  4.  ›
  5. Profit Planning for a New Business
  6.  ›
  7. Pricing Decisions

Making Pricing Decisions is one of the critical activities when you are assessing the viability of your (new) online business. 

creating an online home business

In most industries, particularly in an online environment, the pricing decisions you make will be a significant factor in whether or not your customer base will engage with your online business and purchase your goods and services or click on your links.

Don't ask me why, but it seems that every man and his dog expects to be able to get a bargain online, for physical products at least.  The product or service may be superior, or not available offline in their location, but they still expect the price to be lower.

Electronic goods are a little different, flick through your facebook feed and check out the adverts.  I have no doubt at all that you will soon see that there are commonly used prices for e-books, online courses, packages of templates, webinar training, etc.)  

Personally I like creating and selling electronic products. With physical products your sales are limited to the actual number of goods you can produce.  

But if you create an electronic or digital product, you only have to create it once and then you can sell it over and over again!

Making decisions about how you price your offerings is entirely up to you, and you can engage in a bit of trial and error to find the price points that is acceptable to your customer base and also generates large enough profit for you.  You could just set a price, offer it to the market and see if you make any sales. If you don't either increase or decrease the price and try again.  

Don't always automatically drop your prices, some markets will not go for low cost products and it is possible that your customer base believes that your current low cost offer indicates low quality!

If you do make some sales, maybe tweaking the prices will increase your sales.  Your prices will should not be set in concrete.  Your market will not remain static, and you need to be able to change your offers in response to changes in the market.  Pricing is one of the things that you can use to manage through those changes.

So, what should you consider when you are making your pricing decisions?

Basing Your Pricing Decisions on Your Product Costs

One method of pricing your goods and services is cost-plus pricing.  Basically this means that you calculate what each product or service costs you to produce and then you add a margin for profit.

In most situations, the cost of your products will determine the lower limit of your prices. To accept a price that is lower than the cost of producing or sourcing the product will mean that you are operating at a loss.

To define the lower limit of your prices, the first step is to calculate your product costs.  I recommend that you look into using a cost accounting method to cost your products.

Click here for more information on Cost-Plus Pricing

... and Your Market Position and Competitive Strategy

In some cases, companies choose to position themselves in certain markets and this may influence their small business pricing strategies. For example if you have decided to operate in the fast food industry, you are probably going to have to set your prices lower than an upmarket restaurant would, to make your products affordable for families and teenagers.

On the other hand if you are trying to develop a business identity as a provider of high quality or specialized products, setting your prices too low might damage your reputation in the long run.

If you are unsure of your market position or you did not undertake any market research I strongly suggest that you go back and do so before you attempt to set your prices.

... and Value to the Customer

A critical factor in setting your prices is really understanding customer value. Most people use more than one criterion when deciding which product to buy. Price is usually important but it may not be the deciding factor for your customers!

You should not just guess what your customers preferences are. To do so may result in offering a product or service that does not provide sufficient value to your customers. If you haven't already, it would be a good idea to do a bit of research on why your customers are likely to buy from you rather than from one of your competitors.

... and Competitor Responses

Once you have made your pricing decisions and set your prices, how are your competitors likely to respond? Getting yourself immersed in a price war as a new business is probably not an especially good idea. You simply don't have the resources of an established business (like your competitors) to slug it out and win!

If your competitors are likely to price match, you are better off redefining your product offering to highlight the differences between your product and those of your competitors rather trying to compete head on. Find something in your product that customer value more than price and promote your offering on that basis.

Back to the top of Making Pricing Decisions for Your Online Business
Back to the eBizBAM Homepage 

Couldn't Find What You Were Looking for?

Try searching the site using the search box below:

Recent Articles

  1. Adsense Income

    Aug 20, 17 11:05 PM

    Although it was a lot more lucrative in days gone by, Adsense Income is still one of the first monetisation methods used by new online business owners.

    Read More

  2. Running an Online Business From Home

    Aug 17, 17 02:28 AM

    If you are planning on running an online business from home, there are one or two things you should consider.

    Read More

  3. Which Small Business Web Hosting is Right for You?

    Aug 06, 17 11:33 PM

    One of the first questions that will arise when you start the process of building your online business is which form of small business web hosting will you need?

    Read More

Special SiteSell Promotion