The Price is Right!

shutterstock_126018851One of the most important issues you must decide on as an entrepreneur is how much to charge for your product or service. While there is not one single right way to determine your pricing strategy, there are some guidelines that will help you with your decision.

Pricing has to be consistent with market positioning; people really do hold strongly to the idea that you get what you pay for. Remember that your gross margin (price minus cost of goods) has to amply cover your fixed overhead in order for you to turn a profit. Many entrepreneurs under-estimate this and it gets them into trouble.

At one extreme, being the low-cost leader is a form of differentiation from the competition. At the other end, a high price signals high quality and/or a high level of service. In certain situations, such as a price war, market decline, or market saturation, you must temporarily set a price that will cover costs and allow you to continue operations. Pricing will help you create positive cash flow and build sustainable profitability. Pricing will always be the main design component for profitability.

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