The Fine Art of Pricing Your Product

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If you have a tangible differentiator, don't lower your price. One of my former companies sold services head-to-head against the Big Six accounting firms. We were competing to provide expertise in converting corporate information systems to Microsoft(MSFT) Windows. I had four years of Windows engineering expertise—I was even on the Windows team at Microsoft. My team was equally strong. The Big Six had six months of Windows experience. No need to lowball—we had the expertise advantage.

When your company is equal to the competition, you shouldn't lower your price. When I started a staffing company and was competing with a large job shop to hire highly skilled freelance programmers, I did lowball. The programmers were the decision makers. They didn't care who paid their paychecks, they wanted only to keep working at Microsoft. In this case I paid the contractors a piece of my profit—more than the large job shop would—because I had no differentiator.

2) Know the right price point. Many managers in Corporate America have signing authority of $2,500 or less. So price your product/service at a level they can approve. Then upsell them later. Getting your foot in the door is key. I started out selling a product for $1,995. Within a few months I upped it to $9,995 for a work group license, then $24,995 for a departmental license, then into a healthy six digits for a site license. Again, when you're launching a product, you have to test the waters.

3) Position yourself according to your pricing. Make it clear if you're a specialist or a commodity provider. A specialist can charge more, but a commodity provider can learn to differentiate on service. Consider Federal Express(FDX) vs. DHL. Service levels can boost the price for a similar product. If you go the specialist route and charge high-end prices, your image (Web site, collateral, all customer-facing activities) must reflect this.

How has your business solved a pricing dilemma? Share your solution in the comments box below.

Christine Comaford, CEO of business accelerator Mighty Ventures is the author of the best-selling book Rules for Renegades. She invites you to participate in her next Q&A call by registering at www.AskChristineNow.com. She writes her column on small business growth strategies every other week.