Pricing Your Small Business Products or Services

Last week, I had a meeting with a client about marketing her new restaurant location, one of the things that we discussed was pricing. Should she raise her menu prices or keep them the same?

Since price is one of the 5 Ps of marketing – the subject of our last post, this post will elaborate on this important element of the marketing mix.

How to price your Products or Services

Pricing is a powerful marketing tool used not only to gain competitive advantage but also create a sustainable business.

It can be difficult to get right, you can undercharge and leave money on the table or overcharge and no one buys your product/service. The first thing is to …

Understand your costs both fixed and variable such as:

  • Cost of goods
  • Labor costs not including salaries
  • Overhead costs including: rent, marketing, insurance, utilities, salaries, benefits, office supplies, taxes, etc.

Knowing all the costs that go into selling your product or service will help you determine your breakeven point, the point at which your sales cover your expenses. The next step is to …

Know what your competitors are charging

Include your direct competitors, competitors offering an alternative solution as well as low cost competitors in your research.

Related Post: Who are your competitors?


Define how you want to position your business in the market place

Do you want to be known as discount or luxury? Low cost or high quality? Or somewhere in between?

Once your determine your costs, what your competitors are charging and how you want to position your business in the marketplace, the next step is …


Determine your pricing strategy

Keystone Pricing

Mostly used in retail – take the wholesale cost and double it to come up with a price to charge. It’s not perfect but it does the job – most of the time.

Offering discounts

Offering discounts can be a good strategy when used from time to time but when you do it too often, it may backfire – your customers may not want to pay full price anymore

Odd Value Pricing

Sell a product at $19.99 instead of $20. Price it at $1495 instead of $1,495.00.


A pricing strategy used when you have an advantage in the marketplace such a well-known brand, exclusive patent or license. People will wait in line and pay for the product no matter the price.

Apple is a good example; customers perceive their products as providing a better value than their competitors and are willing to pay a premium for it.


is opposite of skimming. You start at a lower price to gain market share and raise prices once you have a loyal customer base.

The drawback is that you condition the market in expecting low prices and risk not making money or losing money.

Tier Pricing

With this strategy you offers your customer a price choice with products or services: Basic, Upgrade and Premium – 70% of your customers will choose the Upgrade package.

Products or Services Bundle

using a lost leader such as a product given at cost or below cost paired with a higher margin product.

Option Pricing

This is a great illustration on the psychological effects of Options Pricing. A snippet from Dan Ariel’s TED talk.

In his book, Impact Pricing: Your Blueprint for Driving Profits (CWL Publishing Enterprises, 2011) Mark Stiving writes:

“Pricing should only be based on what the customer is willing to pay. If the customer is willing to pay $1,000 for a product that costs you $10 or even $100 to make, you have a successful product. If the customer is willing to pay $1,000 for something that costs $1,000 to make, you don’t raise your price — you get out of that business.”

Perceived Value

It’s why a customer is willing to pay $1,000 for a product that costs you $10. Perceived value is created by establishing reputation, marketing message, packaging or presentation and knowing what your customers/clients value.

Does your target audience value their time? Do they want to look good? Are they looking for a quick fix? Are they looking for prestige?

Speaking of perceived value – will you prefer to satisfy your chocolate cravings with a Hershey Bar or will you be willing to pay more to indulge with a delicious gourmet chocolate from Godiva Chocolatier?

Related Post: Your Business, Your Story, Your Brand


It’s time to raise your prices when

  • Competitors are raising theirs
  • Customers tell you that you are a bargain and this is not what you want to be known for on the marketplace
  • Costs have gone up
  • Demand is high and quantity is limited
  • You want to reposition your business

If you decide to raise your prices

  • Do it in small increments – the magic number seems to be 10%
  • Raise prices on some products or services and not on others
  • Introduce new products and services
  • Choose the right time (just before your busy season) to introduce your new prices

It’s always a risky proposition for a small business to compete on price only; compete on service, value, ambience or other factors that can set you apart.

Related Post: How to Deliver Great Customer Service
What did my client decide to do? She upgraded her venue, improved product quality, trained her staff to deliver outstanding customer service and raised her prices.
Happy marketing!