Building a Stairway to Business Profits
Successful businesses have multiple products or graduated services to offer their customers. This allows for choice and an ascension model of pricing that adds value and revenues.
If a business owner only has one offering then it is a good idea to create a line of associated services or products to increase the selection pool and capture more customer segments. Offering a low cost, medium and high end service will enable bigger revenues.
All businesses — from sole proprietorships to large corporations — want to maximize profits. This doesn’t happen by accident however and requires vision, planning and the commitment to implement all that is necessary. Business owners and service professionals must rely on pricing strategies when pricing their goods and services. From the startups to mature businesses, we all could still learn about new, effective strategies that positively affect our bottom lines.
Pricing not only affects a business at its bare-bones beginnings but is a long-term objective that feeds into a company’s big-picture business plans and goals. Done properly it can build a stairway to business profits.
If you’re at the beginning of this process, here are some pricing models to consider when deciding which strategy and structure is best for you, and your company:
• Service is free, but paid advertising rules the roost: This model, most notably used with social-media sites like Facebook, allows users to create free accounts and access free features — however, revenue is generated via click-through advertising.
• The product is free, but you pay for goods and services: For many small businesses, this could be a good marketing tactic, but it could mean wasted money if the products do not take off. So be sure to do your research prior to implementing this pricing structure. If you are selling and marketing a mobile game, for example, this structure would help you hook the customer while achieving download and financial goals.
• Cost-based Model: Whether we are economical novices or pros, it still makes sense to price some products two to five times more than the cost of making the product in order to turn over a profit. After all, packaging, marketing and distribution costs can add up.
• “Freemium” Model: We have all seen this model. A website, such as YouTube, Hulu, LinkedIn and others provide free content, but “premium” users pay a monthly or annual fee to receive additional content, access to tools,analytics and online courses.
• Tiered (Or Volume) Pricing Model: This model is used when a company wants to offer some basic services at a lower price but then tier the pricing to more items. One example of this is online cloud storage. A user can pick how much he or she needs in gigabytes on Google Drive based on monthly usage, with tiered pricing, that increases as the number of gigabytes are consumed.
• “Razor Blade” Model: This model relies on a less-expensive up-front cost of an item for a consumer, but then, extra recurring items for use in the product are more expensive. For example, printers.
• Value Model: A business can place a value on a product for individuals and decide pricing based on the perceived value for consumers. A pharmaceutical company may decide to price name-brand insulin higher because the demand — and need — for the drug places a high value on it.
When assessing which of the above profitable business models, as well as other models, are good for your company, be sure to keep pricing structures competitive. The pricing has to be acceptable to your customer. This establishes more brand loyalty and will help ensure your place within your particular target audiences and industries.