1. Money

Writing The Business Plan: Section 5

Part 2: Pricing Strategy

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Business Plan

Business Plan

Image (c) Susan Ward

Pricing Strategy

The pricing strategy portion of the marketing plan involves determining how you will price your product or service; the price you charge has to be competitive but still allow you to make a reasonable profit.

The keyword here is "reasonable"; you can charge any price you want to, but for every product or service there's a limit to how much the consumer is willing to pay. Your pricing strategy needs to take this consumer threshold into account.

The most common question small business people have about the pricing strategy section of the marketing plan is, "How do you know what price to charge?"

Basically you set your pricing through a process of calculating your costs, estimating the benefits to consumers, and comparing your products, services, and prices to others that are similar.

Set your pricing by examining how much it cost you to produce the product or service and adding a fair price for the benefits that the customer will enjoy. Examining what others are charging for similar products or services will guide you when you're figuring out what a "fair" price for such benefits would be. You may find it useful to conduct a Breakeven Analysis.

The pricing strategy you outline in your marketing plan will answer the following questions:

What is the cost of your product or service? Make sure you include all your fixed and variable costs when you're calculating this; the cost of labour and materials are obvious, but you may also need to include freight costs, adminstrative costs, and/or selling costs, for example.

How does the pricing of your product or service compare to the market price of similar products or services?

Explain how the pricing of your product or service is competitive. For instance, if the price you plan to charge is lower, why are you able to do this? If it's higher, why would your customer be willing to pay more? This is where the "strategy" part of the pricing strategy comes into play; will your business be more competitive if you charge more, less, or the same as your competitors and why?

What kind of ROI (Return On Investment) are you expecting with this pricing strategy, and within what time frame?

Continue on to the next page to learn how to put together the Sales and Distribution part of the marketing plan.

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