Q: I’ve heard the figure 50% mark-up for retail goods – that the cost I charge should always be double what I pay. Is this a good way to set prices?
Q: Should I keep service prices low if as long as I’m a new face entering the market?
Q: I’ve heard the figure 50% mark-up for retail goods – that the cost I charge should always be double what I pay. Is this a good way to set prices?
As you will discover in answers to the other FAQ’s in this Step, there are many considerations that factor into setting prices. Mark-up percentages will vary according to the industry you’re in, the type of business, according to how competitive the marketplace is. Mark-up percentages also vary according to each product or service. Big ticket products will be marked up at much lower percentages than small ticket products. For some products, manufacturers might regulate or recommend the amount of mark-up. In other markets, such as commodities, prices are set and the providers only means to tinker with margins is to trim manufacturing costs or by controlling the timing of sales, selling when prices are higher and holding when prices dip.
Q: Should I keep service prices low if as long as I’m a new face entering the market?
It’s not uncommon for new entrants to work their way into the market with competitive prices. We think the matters of pricing are guided by many other factors, some of which might be more important than being a start-up. If you’re considering lower prices to attract customers to your business, here are a few things to keep in mind:
1. If you decide to lower prices, it’s important to know your costs, and to ensure you maintain prices at an acceptable profit margin.
2. Larger or well-funded competitors can outlast you in a price war, and ultimately they will run you into the ground.
3. Sometimes, you’re better off to compete on something other than price. For example, offering higher quality or better service might position you better than being the low bidder.
4. Your pricing makes a statement about your business and positions it in the mind of your customers. Lower prices can create the impression of lower value, or that your products or services are worth less.
5. Once you’ve positioned your business in the minds of customers it can be difficult and costly, if not impossible to reposition. For example, customers purchasing at lower prices don’t necessarily transition to paying higher prices. You might go through all the effort of providing your goods at starvation prices, only to discover that customers jump ship when you attempt to increase your prices.
6. It’s always easier to lower prices than to increase them. Sometimes you’re wiser to enter the market with higher prices, and keep testing different prices until you find the sweet spot.
7. As a new business in any market, you will want to keep one eye on competitor reaction. Entering a market with lower prices might trigger a price war. Don’t initiate a price war unless you believe you can survive it.
Have a question? Need Help?
Email us at faqs@riskbuster.com
We welcome all questions, comments and feedback and look forward to hearing from you!