Life isn't about finding yourself. Life is about Creating Yourself - George Bernard Shaw

header photo

Pricing – How do you Value Yourself Part 2


Pricing – How do you Value Yourself Part 2

By Chuck Groot

I was working with a new client the other day and we started out with the financial picture of the business. This person started their business around three years ago and it truly was a labour of love. The product they had was an important product, a must needed niche in the market, and beneficial to the community. Unfortunately, they were doing their own accounting and really did not have a strong enough grasp on accounting to paint a proper picture. The interesting thing was that this person did have a semi-silent partner who did have an understanding, but accounting wasn’t part of their input to the business. Interesting! Everyone should work to their strengths and have those qualified do the tasks that fits their expertise.


Immediately it was apparent that they were bleeding cash. They knew it but didn’t know how to fix it. After a few questions, it was crystal clear what had to be done. Get a firm grasp on exactly what the costs were and what category they would be part of revenue, cost of goods sold, and administrative costs. From there we had to:


  1. Determine how they did their pricing. (It was based on supposed costs and what the “market” would bear, in other words, they checked out the competition.)
  2. Look at ways to reduce costs and slash things that weren’t needed.
  3. Research ways to increase sales as fast as possible.


The three keys ways of making more money: increase price, reduce costs, and sell more.


We are now going to look practical pricing procedure. In our previous article, Pricing – How do you value Yourself Part 1, we learned how to properly look at revenue and costs to determine break-even accounting. We also gave an example of getting a 15% profit. Now we will look at more theoretical approaches. Before you set your prices, it is essential to understand your market. Who is your target market? Who are you appealing to? Yes, it is important to know your competitors, but more important is knowing what your values are and the type of business you want to run? Can you offer a better or different experience than your competitors?  What type of ambiance, feel, look, and decor are you most comfortable in? What is true to you? But if you are in business for business sake, then you must take that in account and choose a pricing strategy to maximize your sales and profitability.


It is important to remember that people will perceive your value by the value you place on yourself.



Break-even pricing


We talked about it earlier, but it comes down to taking the cost of production per unit and adding the requisite administration percentage and pricing the product or service so that it neither makes money nor loses any. Some companies use break-even pricing to create a loss-leader to bring customers into the store in the hopes they will buy something else.  Just make sure that all your costs are accurate


Cost of production (or purchase of item) + % of administration cost = sales price



Pricing at a Premium



This is a technique that is used to set you apart from your competitors and particularly good if you have unique items. You want to be the Rolls Royce of your market and give the quality, service, post-purchase attention, and overall experience so that your client feels special. You would price your products higher than the closest competitor and provide an experience that is commensurate with that price. Generally, it would be anywhere from 20-30% higher.


You are setting your brand apart from the competition. Your higher profit margin allows you to promote more and make it harder for your competitors to get into your niche.



Market Penetration Pricing


As the title states you are intending to penetrate the market quickly and deeply. You do this by using a price point slightly more attractive to the consumer, usually about 10 – 15% lower than the competitors but still with a profitable price. Yes, you will have to work harder, sell more, and watch all your costs carefully, but if marketing widely it can be very effective. Once you have built an awareness and loyalty with your clients you can slowly start to raise your prices.


This can lead to a price war, but if used properly you will gain awareness from the consumers. Your goal is to get known, increase market share, and sales volume.



Economy Pricing


Like market penetration pricing, it is used more often with a typical low-cost, high-volume store. All your prices are lower than average, but you are intending to make it up with volume and customer loyalty. This is very effective if you have a lot of products, but it usually is dangerous if you have a small store with a limited amount of products. You are appealing to a demographic where price consciousness is important.



Price Skimming




Price skimming is where you start at a high price when the product is introduced and then over time the price is reduced. Often this is used by a company who is introducing a new product to the market and as competitors start coming in, the company start dropping the price to maintain sales. This strategy plays well when you have a high-quality brand and you know that your customers equate price with quality.


Psychology Pricing



This strategy plays entirely on emotion rather than logic. What looks better, sounds better, is easier to say, appeals to a specific market; these factors motivate the final price. You are creating an illusion of enhanced value which in turn helps drive demand. There are actual names for these tactics:


  1. Charm pricing – reducing the left digit by one i.e. instead of $ 200 use $ 199.
  2. Prestige Pricing – rather than dropping the left digit by one you increase it i.e. instead of $ 199 use $ 200
  3. Buy One Get One Free BOGOF – the customer pays full price and gets another at a reduced rate – free, 50% off, or 25% off etc.
  4. Comparative Pricing – putting a high-priced ticket item next to a lower priced similar item. When I had my studio, I loved to have three different price point for a similar item. I just varied the finish to the studio. People usually bought the middle-priced print (which is the one I wanted to sell), then the most expensive price, and finally the cheapest price. People don’t want to look cheap.
  5. Visually highlight the different prices – when you have a sale make sure you sure you show the original price and highlight the new reduced price. People love feeling they are getting a deal.


The decision you make will be the difference between making a profit or not. Your decision will be determined by the return on investment you want to have. After all, instead of running a business you could be investing your capital and if you can make more money by investing, why would you go through the hassle of running a business? It is also important to determine what pricing strategy will bring you the highest profit. Your profit will be made by high price/ low volume, low price/ high volume, or medium price/ medium volume.

The key in all these scenarios is to be certain of your costs and marketing effectiveness. This is done by keeping meticulous records and statistics. If you are just starting out, go to your mentors and show your projections to them and see if they think you are on the right track. When you conduct a sale, record how many more units are sold at the lower price and compare it to the return if you did not have the sale.


Plan, plan, plan, the better you plan when you set your prices, it will be easier to concentrate on business later. Nothing happens till you have a sale and the only way you can make a sale is by getting the customer to see your goods and have them agree with your price. Good luck and good sales.