What’s The Best Business Pricing Model and Software For Your Startup?

Last Updated on May 10, 2022 by Owen McGab Enaohwo

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Are you struggling to optimally price your product or service? Pricing is one of the most critical and challenging decisions every startup owner makes. If you charge higher than what the market is willing to pay, you can drive customers away. Meanwhile, charging too little can cast doubts on its quality, causing customers to undervalue your offering.

Finding the sweet spot that drives profits and keeps customer satisfaction and retention is the key to an effective price point. And how do you make this possible? First, you need to have the right pricing model. This comes easier with established companies due to the number of their metrics and historical data. With startups, however, most entrepreneurs rely only on their instincts.

While there’s no one-size-fits-all answer to startup owners’ pricing challenges, you can find a business pricing model along with process automation software that will help determine all the basics. Discover what they are below.

Cost-Plus Pricing

This pricing approach considers the total cost of producing one unit of the product and the fixed percentage for markup. The resulting amount determines the selling price of the product. While this is an excellent strategy in the long term, cost-plus pricing isn’t always the best fit for many businesses.

Retail companies, such as clothing, grocery, and department stores, often used this model. But since it only factors in calculating your costs, there’s a risk that your selling price is too high. Also, remember that customer involvement is essential to making money. In the case of cost-plus pricing, you don’t provide much value to the customers.

Your startup, however, may also take advantage of this method if you’re selling physical products. Also, if you don’t know about your customer’s willingness to pay, you can use cost-pricing for a starting price. Then you can make adjustments as your market and customer onboarding develops.

Competition-Based Pricing

Matching up with customers’ expectations on price is essential for your company to survive in a competitive market. This is where competition-based pricing comes in handy. Your price points in this model are heavily influenced by what your competitors are charging. This means you have to research what they’re doing with their product and prices.

Typically used for testing product pricing, this model would benefit startups like you. Since you’re new to the market, you might not have your data to understand the product and price the customers are willing to pay. Using your competitor’s data, you can decide on a competitive price that will grab the customers’ attention and increase your sales.

Market Penetration Pricing

It’s often challenging for startup companies to market their products and services when there are already existing ones that the customers trust. This is why many businesses promote their offerings at a lower price. Their goal is not necessarily to make profits but to build brand loyalty and introduce potential consumers to their products at a low cost.

This is a market penetration pricing approach. Setting a low price can drive customers away from the competitors. But, once you have a reliable customer base, your startup can increase prices. And while it can give you the chance to dominate the marketplace, you can’t use this as a long-term strategy. Plus, you have to consider your business’s capacity to take losses.

Value-Based Pricing

Customer value can be a great way to determine the price of your products and services. But to do this, you need to have a good understanding of what the customers consider essential. For example, does your product address their pain points and priorities?

The premise behind this value-based pricing strategy is that customers are willing to pay anything that they believe is worth the price. Of course, this requires a lot of legwork and research that only an operational excellence framework can achieve. If your startup offers products with unique features, such as fashion, cosmetics, and technology, you can highly benefit from this method.

Use The Best Software For Pricing Optimization

Although choosing the most appropriate pricing strategy is crucial for your startup, it’s only one part of the equation. If you want to maximize your sales and profits more, leveraging technology would be a good idea. However, figuring out the best possible price points will take a lot of time, effort, and research.

But the process can be done faster and easier using various pricing optimization tools. They can help you find the most effective price points based on customer and market data. However, nowadays, customers have different preferences regarding the payment method. They now use debit or credit cards to pay for products and services.

Because of this, you also have to consider the pricing structures for credit card payments. Checking out this credit card processor review can help you make a more informed decision. Note that how processing fees are charged to you can influence your pricing decision.

Establish Your Startup With The Right Pricing Strategy

The pricing model you use can significantly affect your startup’s growth, so make sure to choose the right one. Remember that the ideal price points don’t happen instantly. You have to continually evaluate your market and run trials and testing until you find the most suitable option for your company. Regardless of the model you use, always have the customer’s best interest at heart.

Author bio

Analisse Weathers is a blogger and writer. She mainly writes about tech, management trends, and professional growth hacks. Analisse loves to write about these topics as she aspires to become an interior designer someday. In her spare time, she spends time with her family and friends.