Whether you’re starting a new business or re-evaluating an existing one, picking an appropriate price point is a major decision for any club or school. The first priority is obviously to cover your costs and make a profit. The second most important factor is to establish where you stand in regards to your competition and your target market.
Here are 5 steps to determine an ideal pricing strategy:
1. Analyze your expenses
In order to know how much it will take for you to turn a profit, you need to analyze your expenses and your break even point. Make sure you take into account all types of expenses and how often these expenses need to be paid. You can categorize your expenses by Operating expenses, Non-operating Expenses, Taxes and cost of merchandise sold. These can be categorized further into long-term and short term expenses. It’s beneficial for you to map out all payments and plan when they are due so you can plan ahead.
2. Look at your competition
You’ll want to look around at similar businesses in your area and analyze their prices and pricing strategies. This is a great starting point for your own pricing strategy and it will give you a rough estimate of what your target market is willing to pay. Make sure you study how each class or session is priced so you can determine what (if any) pricing strategy your competition is using.
3. Understand your target market
You want to know what type of buyers make up your target market. Are they price sensitive? Do they do a lot of research before purchasing? What do they value? How do they buy? Creating buyer personas and understanding who your potential clients are is a great way for you to decide on appropriate and effective pricing for your organization.
4. Reflect on your own business
It’s important to do an in depth (and realistic) analysis of your business. Ask yourself questions like “Where do I add value?” “What makes me better than my competitors?” “What makes my competitors better than me?” “How well known am I?”
In order to set an effective price point, you not only need to know the answers to these question but also how to communicate them to your target market.
5. Choose your strategy
Once you’ve established who you’re competing against and who your potential clients are, it’s time to pick a strategy. If you’re new to the market, you may want to consider a penetration strategy to build up your client base and attract as many price sensitive buyers as possible. If you’ve been around for a while, you may look at a premium pricing strategy or a price skimming strategy. Whatever strategy you choose, make sure you asses the ramifications and are always above your break-even point.