Have a great new product or service? Now you need to decide how much to sell it for. "It's absolutely necessary to get the pricing right, or you won't be in business very long," says University of Rochester marketing professor George Cook. Here's how to proceed:
Know Your Costs
Those are more than the obvious ones—what it takes to make each widget—says small-business expert Susan Solovic. You also have indirect costs, like marketing and salary. Allocate a share of those costs to each item you produce.
Spy on the Competition
Find out what others in your market charge. Use the tool at sba.gov/sizeup to see who your competitors are and, if possible, do a little secret shopping, advises Solovic. Add a markup to your costs in line with industry standards.
Establish Your Value
You can charge a premium and deliver quality results, says Cook, or charge less and aim for higher volume. Either way, you'll have to convince customers they are getting a good deal. Solovic says an informal focus group of friends and family can provide a pricing gut check.