Is the Price Really Right? 5 Ways to Tell | Inc.com

Is the Price Really Right? 5 Ways to Tell | Inc.com

Setting a price point for goods or services is one of the most difficult decisions an entrepreneur can make.

As an economics major in college, the concept of supply and demand was ingrained in my mind early on. Set the price too high, and you won't attract buyers. Set the price too low, and sales may flourish at the expense of profits.

Outside the classroom, however, there are far greater factors to consider when setting your price. Here are five things every small business owner should know:

Know your value proposition.

Always ask yourself what the value of your goods and services are. Assuming there is no competition or other distracting factors, what is the value of what you're doing in the eyes of consumers?

Know your customers.

You may know deep down that your goods and services are worth a certain amount, but that will only to do so much if you don't consider what your customers can afford or are willing to pay.

Know your costs.

I repeat--know your costs! What are your sunk costs? Facilities? Materials? And what are your non-sunk costs? A smart business owner will know all the answers. Price your goods or services so that expected sales--at a bare minimum--cover your costs.  If not, you can make all the sales in the world and still lose money.

Know your competitors.

Unless you're fortunate to have a monopoly, assume there's some competition in the marketplace. You should research to determine what your competitors are charging for similar goods or services, then adjust your prices accordingly. If you price too far above your competition, you'd better have something that sets you apart.

Know the seasons.

Almost every good and service has peak and off seasons. It's critical to anticipate these changes in order to build a pricing model that can change when needed. After all, you're trying to create a steady flow of revenue, not break even.

MATTHEW SWYERS is the founder of The Trademark Company, a Web-based law firm specializing in protecting the trademark rights of small to medium-size businesses. The company is ranked No. 138 on the 2011 Inc. 500.
@TrademarkCo