Setting the right price is a balancing act between profit and attracting customers. Image: iStock
‘Nomayini’ (meaning any amount) must fall when it comes to charging customers for your goods and services. As an entrepreneur, you already know your worth, so don’t be shy about putting a price on it.
Many business owners have, at some point in their journey, struggled to set the right prices for their goods and services, often short-changing themselves or overcharging their customers.
While it may be easy to simply let your customer decide on the most pocket-friendly price, the generous act is impractical and has the potential to be detrimental to the success of your business.
If you’re planning to go from self-employed to a well-established businessman or woman, then you’ll have to crack the numbers’ game.
FNB Head of Business Development, Palesa Mabasa said setting the right price for your goods and services wasn’t case of slapping on a markup and calling it a day.
She explained that pricing was a highly strategic process which involved a careful balancing act between making a profit and attracting customers.
“For many SME [Small Medium Enterprises] owners, setting the right price might seem like a straightforward calculation, but in reality, it requires a good understanding of factors, including cost of goods and trading, market dynamics, and consumer perceptions,” she said.
The key to deciding what figure to put on your price tag lies in how much it costs to get your product or service ready for sale.
“That means everything from what you pay for goods or materials to the less obvious input costs like how much you’re shelling out for transport, storage, staff, and electricity,” Mabasa said.
“You need to have a very clear picture of every single cost involved in getting your product or service to a customer, and then set a price that covers those costs and makes you some profit,” she explained.
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South Africa’s turbulent economy has left many entrepreneurs battling to keep doors open. Amid struggling to make a profit without hiking prices during high inflation, business owners have been on a trial-and-error rollercoaster ride.
When setting prices, Mabasa advised entrepreneurs to consider future changes.
“Input costs tend to go up and down over time, but that doesn’t mean your prices should too. Constant price changes can be a source of frustration for your customers, so you need to aim for a price tag that can weather the ups and downs of market dynamics,” she explained.
As an entrepreneur, it’s important to know what your competitors are charging for similar products and services so you can set your prices correctly.
Mabasa cautioned against setting prices too low or too high.
“Price yourself too high or too low, and you might send the wrong message to your customers.”
“Too cheap, and they’ll think there’s a quality issue; too expensive and they’ll look elsewhere. It’s about finding that sweet spot where your price feels just right to your customers.”
The expert said proper pricing was about finding the “sweet spot” where your price feels just right to your customers.
When it comes to business, quality is king – so you should never compromise on it, not even for cost-cutting purposes.
Mabasa warned that skimping quality to cut costs will almost always backfire, putting your entire business at risk.
The truth is, customers are always quick to notice if the quality of goods or services has dropped, gradually losing trust in your business.
“If your prices are a bit high when compared to your competitors, don’t start looking for cheaper goods to sell that are lower quality; rather, find other ways to trim your input costs and pass those savings on to your customers,” Mabasa advised.
Although it may feel a little awkward to charge high prices in the early days, you shouldn’t shy away from asking for what you’re truly worth.
“Sometimes, it’s okay to ask for a bit more money, especially if you’re offering something extra that your customers will love. Whether it’s top-notch service, free delivery, or a little freebie, it’s all about making your customers feel like they’re getting their money’s worth,” Mabasa said.
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The business expert warned against obsessing over large profit margins, adding that it could cause problems if customers start thinking that you’re being greedy.
“It’s better to make a smaller profit but keep your customers coming back, rather than making big once-off profits on each sale but losing any chance of repeat business or customer referrals.
“In the end, a steady stream of sales over time is what will keep you in business.”
As you embark on your pursuit of entrepreneurial success, remember that reputation is everything.
Therefore, it’s important to carefully craft your brand, and to maintain high standards of excellence as you build your business.
“If you can get customers to love your brand, they’re less likely to quibble over prices. Build a brand that speaks to your customers, and they’ll stick with you, even if prices go up, and if you must raise your prices, just be honest about why. People appreciate transparency,” Mabasa said.
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