How do I set my prices in order to make a profit?

Dear Aunty,

I am starting a new business the second time around. My first business didn’t fail but it never succeeded either, if you know what I mean.

So this time I am determined to get right. The problem first time around was that I priced everything lower than what my competitors were doing and then ran at a loss until I closed up shop.

This time around I want to get the pricing right. But how do I price correctly to make a profit when I end up more expensive than my competitors?

PJ,
Brisbane

Dear PJ,

Forget pricing. You have a problem with your value proposition and business model. It sounds like you have created another “me-too” business. If you are going up against competitors who are probably larger and more established than you, then you are not benefiting from everything they have set in place.

Have a look at how they have tied up the supply chain so you can’t get a foothold. Try to uncover the secret and sometimes illegal deals they do with their suppliers/clients.

Look at the barriers to entry they have built around their business. Do some sums on the economies of scale they have created that means they can buy cheaply and at a discount.

Factor all that and more into their pricing and you see what you are up against. Back to your value proposition. What are you going to be doing that is the best in the world? How can you take them on with something that takes advantage of technological change, shift in regulations, change in consumer habits and so on?

In other words, what makes you so different that someone will choose you over them?

Then answer this: How can you add value to what you are selling so the client/customer spends more with you? And not just spends more, not just spends enough to make you profitable, but the kind of money that you can reinvest in the business and keep it going.

That is what is going to make you successful.

Back to the drawing board for some creative thinking and then go and take those competitors on!

Be smart,
Your Aunty B

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