How to Set Prices

I don’t know much about setting prices. I do know if you do it wrong, you can kill your company.

If you set the price too low you won’t be able to pay your own bills and you are out of business. If you set the price too high no one buys your product and you are out of business.

If you set the price low, so you can just pay your bills, the company stagnates. If you set the price high clients think you are taking advantage of them.

If you set the price low you will have a tough time raising the price later.

If you set your price on the amount of income you personally want to make you will likely undervalue your services.

If you set the price high and are making great profits, your costs will tend to rise until you are only making average profits. If this happens, you will not be able to respond if the market place changes.

If you bundle related products and sell it for one price you will have problems tracking which components are profitable and which are not. Some customers will be paying for something they never use.

If you unbundle the products and services your customers will think you are nickel and diming them. They may also look at each line item and see something they can get for a dollar less from another vendor.

Try to set your price in relation to the perceived benefit it gives the client. If your product will save someone $1000 then a price of $999 is appropriate. If your costs are greater than $999 you either have to reduce your costs, discontinue the product or redesign/rethink the product so it gives a greater benefit to the customer.

Most companies try to increase profits by reducing costs. There is always fat that can be trimmed, but too often costs are reduced by providing less to the customer. Services are generally supplied at an irritation level. Just above the point that would cause the customer to go to a competitor. The question that seems to be on management’s minds is “What is the lowest service level we can get away with?”

By linking the price to the benefit, there is a balance. You can increase profits by increasing the benefits of your product. The greater the benefit to the customer the more they will be willing to pay.  Make sure that you raise your price as the benefits to the customer increases or the customer won’t even look at your product because it is too cheap. Most people know ‘They get what they pay for’ even when it’s not true.

Concentrating on the benefits to the customer makes everyone a winner.


If you really do put a small value upon yourself, rest assured that the world will not raise your price. Anonymous

Price is what you pay. Value is what you get. Warren Buffett (1930 - )

Never... ever suggest they don't have to pay you. What they pay for, they'll value. What they get for free, they'll take for granted, and then demand as a right. Hold them up for all the market will bear. -Lois McMaster Bujold, A Civil Campaign, 1999

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