Pricing strategies for small businesses

Profit making is undeniably the ultimate objective for most businesses. This is because it leaves your business with additional money to reinvest… or to buy that new house you’ve been dreaming of. Building a successful business therefore means maximizing your revenues and minimizing your expenses to ensure that your business remains profitable. Your revenue will depend on numerous factors, but key among these will be your marketing strategy as it determines your level of sales. Your marketing plan will also determine your pricing decisions and these will have a major impact on whether your business achieves profitability or not. This article discusses pricing strategy for small businesses to ensure your business attracts customers and stays profitable.


Is the amount that your business will charge customers to access your products and services. If your clients will pay a monthly subscription of $19.99 then that amount is your price. The more important question however, is: How do we determine a product price? There are three factors that determine prices. These are your costs, competitor prices as well as the willingness and ability of your customers to pay.

Factors that determine prices

1. Costs

Costs are all the money that you spend to bring your product or service into existence. These are all the inputs you put into your product, the Labour costs and your overheads. Due to the uniqueness of each business, the costs will vary with each enterprise. It will not cost your neighbour the same amount to produce the same product. As a business owner you will therefore need to find out what it costs you to produce your products and then make the appropriate pricing decision. The higher your costs, the more they eat into your profits. The process of ascertaining your costs so as to make pricing decisions is known as costing. A technique called break even analysis is used to ascertain how much of a certain product to produce, what price to sell it at and to decide if at all, that product is worth producing.

2. Competitors

Depending on the nature of your product or service, your competitors could play a major role in determining your prices. In the case of a homogenous product, your customers are presented with more alternatives and thus, a slight increase in your prices could diminish your customer base significantly. Whilst it is also easy to assume that your competitors are those in the same line of business as yours, this may not necessarily be so. If your service is a streaming service, then in addition to the other streaming services, you are also competing with traditional television and the play at the local theatre. So in essence, your competitor is every business going after the same customer’s wallet and time. It is therefore important to be aware of the alternatives available to your customers and rationalize your prices.

3. Customers

These are the people who buy and use your product. Are they willing and able to buy your product or service. They might have watched it in awe as you showed them how it works, but does it meet their needs and satisfy their wants? Would they reach for their wallet to make a purchase? Can they even afford it in the first place? This calls for extensive research prior to launching. Consult your potential customers, understand their lifestyles and their buying behaviour. Are they affluent consumers who do not mind paying an additional dollar for quality, or are they struggling to make ends meet and every amount saved goes a long way? How they perceive your product will also determine how much they are willing to pay.

An effective price strategy utilizes a combination of all three of these elements. As you plan your sales campaign, bear in mind that customers will only buy from you if they believe they are getting something of value. It’s even better if you can make them feel like they are getting this value at a bargain. Avoid the following pricing mistakes which many small businesses make.

Common pricing strategy mistakes

• Trying to get rich off a single sale.

Picture this scenario…. you run a nice burger joint at the corner of a busy street. Your burger costs a dollar. Then on one fine day, Beyoncè happens to walk in and she orders a vegan burger. You have read how much she’s worth from Forbes and this might be the only time she visits your place. She asks you how much it costs. Would you still sell it at a dollar? Now let’s blow this up a bit… Many small businesses tend to overpriced their products when Dealing with the major companies. Remember the executives are ordinary people like yourself. Do not ruin your reputation by coming across as greedy.

• Not calculating costs

I’ve never been a fan of numbers, so my eyes get a bit heavy whenever I’m doing math problems. Many entrepreneurs fall in the same boat and thus neglect the numbers when making business decisions. The threat that this poses is that you may be giving your product away at a loss. Oftentimes the overheads are overlooked and thus we have encountered many businesses that seem to be selling pretty well but at the same time, are struggling to pay rent.

• Not consulting potential customers

Many new businesses make the mistake of assuming that their product will sell itself and thus neglect finding out whether customers are willing to buy the product. Can they afford it and would they be willing to part with their cash to acquire your product?

Coming up with a pricing strategy for your businesses

• Outline your objectives

Since coming up with a pricing strategy is only part of your bigger marketing plan, it is important to start by first outing your objectives and deciding what you want to achieve. Are you trying to:

  1. Position your product as a premium product
  2. Maximize profits
  3. Build your customer base

The answers to these questions will determine whether you set a lower price that helps you sell more or one that results in less sales but at higher margins. Once you have decided which path your business will take, the next step is to make your prices attractive to your customers.

Common pricing strategies

Slash prices

this does not necessarily mean lowering your prices, but presenting them in such a way that they seem cheaper.

Option 1

I’ve seen this with a number of online courses where they first tell you all the benefits of their program and then they tell you to guess how much it costs. After a while they tell you the product is worth $1675 but they will give it to you for $139 If you buy it now or within a limited timeframe.

Option 2

Alternatively you could simply write:
Was $125 Now $89.99

Offer Discounts

If you decide to give discounts, you will also need to be clear about who gets discounts and why they are getting discounts. Remember the ultimate goal is to make money. Will the discount encourage the customer to buy more, bring additional customers or return to make another purchase?

Types of discounts

1. Cash discount

is offered to a customer who buys goods or pays for goods in cash instead of taking them on credit. This is particularly helpful if your business sells mainly on credit. The goal is to encourage prompt payments.

2. Quantity discount

is offered mainly to users who purchase significantly more than the average user. This user might be buying the goods for resale or a major project or event. Say a normal customer buys one or two pairs of shoes, but then this one client makes an order for 50 pairs in one go. That client could be rewarded with a discount.

3. Seasonal discounts

are offered at specific times of the year. This could be a public holiday, a back to school promotion or the festive season. You could offer discounts as a means of countering competition and selling more as customers tend to spend more during those periods.

Introductory offer

Some organisations welcome new users with an introductory offer. This is particularly helpful if your business uses a subscription model. You could start by offering the first three months at half the price. The goal of your pricing strategy is to get users to try out or sign up for your product or service and then make more money from them over time. You should therefore understand their lifetime value to your business.

Premium Product Pricing

Low prices might work for common or homogenous products but they might not work for luxury products. Some individuals enjoy the exclusivity that comes from possessing a premium product or enjoying a luxury service. If your goal is to present your product as a luxurious or sophisticated one then you should definitely consider selling it at a price which is much higher than its peers. The key is to make sure that your customers see and experience the value that comes with paying additional dollars for your product. Setting low prices for a luxury product might make your target audience view it as inferior or faulty and thus not purchase it.


Coming up with a pricing strategy for your business is only part of your marketing plan. The strategies mentioned above must be used in unison with the other P’s of your marketing mix. A good pricing strategy could set your business apart and give it the edge needed to outlast its competitors and achieve profitability. I hope you found this helpful and as always, I wish you all the best- happiness, health and wealth.

Happy Business Building.

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