The price is defined as the exchanged value for every product or service you offer. It is influenced by:
- Demand (How much are the customers willing to pay?)
- Customer Benefit (What value do your customers see in your offer?)
- Offer (At what rate are your competitors offering the same item?)
- Production cost
- Private expenses
- Last but not least: Your feeling (What is comfortable for you?)
Importance for your Business Plan
You are right: Finding the right price is a science of its own. Maybe even art. During your startup journey, you should constantly revaluate and spend sufficient time on it.
Your business plan is neither science nor art. At the most, it is a small balancing act ;-). Your potential investor want to see that you have strategically thought about pricing and that you are aware of the balancing act. Show them how you approached pricing and why you chose this particular price for your offer:
The following three views are important for your calculation:
- Cost-oriented strategy
Calculate how much money is needed to cover your costs. How much money do you need to make to keep from making a loss?
- Competition-oriented strategy
Calculate the average price your competitors take.
- Customer-oriented strategy
Calculate how much money your customer is willing/able to spend on your offer.
It is possible to get a different result for all three approaches. It can’t be helped. Nonetheless, all three sides should be taken into consideration. Decide on a focus and make a transparent decision.
- To know your minimum price you have to calculate your costs and estimate sales. In SmartBusinessPlan our guiding questions and wizards help you with that.
- To figure out the average price for your product, contact industry specialists or public institutions.
- If you offer several items or services, focus on the most important ones for your business plan or organize them in groups.
- Entrepreneurs tend to set their prices to low. This could cost you. Working with losses means you will have to subsequently change your pricing, which will delay the break-even for your enterprise.
- As a freelancing entrepreneur you calculate your minimum profitable fee by adding up all of your private and professional expenses for a year (plus taxes). Then you calculate your work days: 365 minus vacation, sickness, Sundays, Holidays and the days you will need for getting leads, accounting and marketing. Now divide your costs by the number of days. That way you will get the pricing baseline for your hourly/daily fees.
- Don’t limit your pricing transparency to your business plan. Nothing deters customers more, than unexpected high prices. Avoid charging hidden fees.
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