ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Product Pricing Strategy for Small Businesses

Updated on February 6, 2014

Pricing is King!

Small Businesses Often Fail Because of Poor Pricing Strategies

I consult with hundreds of small businesses every year and I consistently see terrible pricing practices.

Here's a common conversation I have. Lets use Joe who owns an auto repair shop.

Me, "Joe, how do you set your pricing"

Joe, "I charge $60/hour for labor."

Me, "What about parts?"

Joe, "I mark-up 50%." Me, "Why?"

Joe, "Why what?"

Me, "Why do you charge $60/hr and mark up 50%"

Joe, "What do you mean why, that's what they charged at the shop I used to work at."

Me, "How's that shop doing?"

Joe, "They went out of business last year and the guy I used to work for now works for me."

Me, "How much does he make?"

Joe, "About $60k per year with commissions."

Me, "How much do you make per year?"

Joe, "I don't know, whatever's left after I pay my employees, my suppliers and the government."

So there you have it, Joe's scientific pricing system. What's a better way?

4 Basic Pricing Methods

Method 1 - Survey all your competitors for their prices and their offerings. Set your prices to be competitive with them and then back into what costs you need to make a profit. This strategy only works if your survey includes profitable shops. Getting your pricing from failing businesses could do more harm than good.

Method 2 - Calculate your costs, overhead and the profit you need and then back into the prices you need to charge to make those numbers work. The risk in this is that if you are a bad manager and your costs are too high your pricing might be too high for your customers.

Method 3 - Pick a high price and then negotiate with your customers when you need to. This strategy is very common in the home improvement industry. I don't recommend it since your customers are usually a poor source of honest feedback on pricing and in addition, there will be lots of customers who won't come back at all.

Method 4- Identify the 2 higher priced, successful competitors, and use their pricing as a baseline for your pricing and then figure out how to perform your services at least as well as they do with costs that allow you to make a reasonable profit. This method is where you will test your ability to be honest with yourself. Charging high prices takes a lot of smarts and operating excellence but it is done all the time and many customers are happy to pay high prices for perceived quality. How do you think the sell Rolex watches?

Pricing Strategy is Not a Once in 5 Year Project

A good business owner keeps up with their pricing strategy almost daily. In even a small business their are dozens of opportunities to improve your profits through smart pricing.

Start today....take a look at your 3 highest volume products. Research suppliers and determine how to lower your cost of that item by 5%. Talk to your suppliers like they are partners, you might be surprised about their willingness to help you...especially if you are known to pay your bills on time.

Once you've taken a hard and honest look at your costs it's time to take a look at your selling prices. Anyone who marks-up everything the same is losing money.

If you mark up a $100 item 50% that's $150 selling price. If you change the mark-up to 60% that's a $160 selling price or a $10 increase. Your customers might have a problem with that. But you also sell items that cost $1, you mark them up 50% and charge $1.50, if you mark those items up 70% it's a 20 cent increase. Will your customer leave your store to go somewhere else to save 20 cents?

Pricing products and services for small businesses is 1/3 science and 2/3 art.

Smarter pricing means better profits.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)