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Vector of a hand accepting a coin. Represents deciding on a pricing strategy that will connect with customers.

Pricing Basics for Small Business 

Kody Wirth | Oct 29, 2023

Pricing products or services can be difficult. 

You can’t just pick a price out of thin air and hope it will lead to profitability.

To do it right, you must understand your costs, customers, competitors, and goals.

But how do those translate to setting a price? This guide will show you.

What you need to know about pricing

Make pricing easy by knowing the basics.

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Pricing strategies and models explained

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Learn about the common types of pricing strategies, how to apply them, and what it takes to choose the best strategy for your business.

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How to price your product

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Product pricing can be broken down into four simple steps: identify costs, consider profitability, analyze the market, and test.

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How to price your services

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Service pricing is far more subjective. While the steps are similar to pricing a product, additional considerations must be made.

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How pricing impacts your business

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Your chosen price defines you, establishes your market position, and directly impacts operations. Here’s what you simply cannot afford to forget when setting prices.

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Pricing is just part of the equation

Finalizing your pricing strategy is one of the last steps you need to take before it’s time to document everything about your business. Along with your pricing, you should have landed on a solid business idea, validated it, conducted market research, and decided on your business model.

If you’ve completed those steps, take what you learned and turn it into a plan for running your business. You’re ready to write a business plan. 

Product and service pricing FAQ

Consider your production costs, desired profit margin, competitor prices, and the perceived value to customers. Adjust based on feedback and market response.

Pricing is crucial for a small business as it directly impacts profitability, competitiveness, and market positioning, and can influence customer perception and loyalty.

To price items to sell quickly, set prices slightly lower than the market average, offer discounts, or bundle products for perceived added value.

Calculate your total costs and expenses, add a desired profit margin, and consider market demand and competitor prices to ensure sustainability and competitiveness.

The best pricing strategy varies by business and market. It could be cost-plus, value-based, competitive, or another approach. It depends on your business goals and customer preferences.

There are many different pricing strategies. An example is “penetration pricing,” where a business initially sets a lower price to gain market share and then raises it once a customer base is established.

A good profit margin varies by industry, but a net profit margin between 10% to 20% is considered healthy for many small businesses.