02.26.18

To raise or not to raise prices

KARL R. LAPAN, PRESIDENT & CEO, THE NIIC

“To be, or not to be, that is the question.” No, for the entrepreneur, the question is to charge or not charge or to raise prices or not to raise prices. Shakespeare’s Hamlet is no startup operation.

When you take basics of marketing class, you learn about the “four P’s and the C.” Among them is the all-important price. As an entrepreneur, your business model thrives or sometimes dies on the amount you charge and to whom you charge it to (knowing the difference between customer, user, a beneficiary of a product or service). If your price is too low, you risk cutting into profit—while charging too much can outprice you in the marketplace.

How then do you know if you have hit that “sweet spot”? Here are some signs you’re likely not charging enough:

  • If your sales are up, but your profits aren’t it might be a good time to look deeper. An accountant might see something you overlooked (and can quickly correct).
  • Next, conduct a competitive analysis. How do you compare? Don’t make the amateur mistake of thinking you’ll attract more volume by charging less money. That’s not good practice. In fact, underpricing can put you at a competitive disadvantage. Price can denote quality, after all.
  • Keep in mind — price also drives behavior. What behavior are you driving by the way you price your product or service? Is pricing a monthly subscription, a product purchase, pay by the download or a freemium model? Osterwalder, Maurya, Ries and other lean canvas thought leaders readily affirm that “to create value for your business, you need to create value for your customer.” Cost is irrelevant. Value isn’t. This is the essence of the value proposition.

So then how to determine price? Take a look at some of this resource on how to set, test and validate pricing. Pricing is as much art as science. Experimentation is a critical component of figuring out what the right price should be. Freemium is not always the way to go. Check out the book Running Lean for more insights into pricing your product.

Regardless of the industry, size or scope of your business, it’s worth giving the books a second look regularly as you do your environmental scanning of the marketplace. A mentor can help provide an unbiased look at your financials and even the nudge you need. Our focus on engaged mentorship at The NIIC targets trusted advisors to deliver targeted advice and counsel to businesses on their most significant challenges and opportunities. It’s available to every company that comes to The NIIC. We take considerable measure to ensure that interested entrepreneurs are carefully connected with professional mentoring resources, where skills and expertise are compatible and of significant value.

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