Pricing basics

Price is a key determinant of profitability for any enterprise. Charge too low for your products and services and you will go out of business. Charge too high and you may fail to attract enough customers.

Pricing appropriately begins with a good understanding of your target customer. A keen understanding of your customers ability and willingness to pay will enable you to design an appropriate pricing strategy.

There are several pricing mechanisms you can use. You can charge a reasonable margin above costs of production. To achieve this, however, means you need a good understanding of unit costs. You can accept benchmark rates in the market for similar products. You can charge below cost to gain entry into market. You can charge premium rates especially if you have a unique service offering. You can have a stepped pricing mechanism based on volume of goods and services procured. For example a lower price is charged for a customer buying in bulk or purchasing services for a longer period.

One thing I have noted is that if you sell a commodity product or service which doesn’t have enough differentiation, you will be forced to take whatever the market gives you. I encountered this in our cottage business when we ventured into laundry bar soap. We produced a good bar of soap which looked exactly like what everyone else was offering and customers were not willing to pay a higher price. In contrast we created a unique ketchup in small pouches which we sold in schools and were then able to command double the price of ordinary tomato sauces.

Pricing services is more complicated. But again it boils down to offering a unique excellent customer service offering to be able to command a higher price. For example, The Money Engineer, has been crafted as a unique professional brand helping people with personal and business financial management rather than being seen as a motivational speaker. Such a service is fairly new and is in its infancy in the market. There are very few people with a blended experience and training in Engineering, Finance, Entrepreneurship, and Corporate Management like I do. For this reason I charge a benchmark rate of nothing less than ugx 150k per hour for individuals and ugx 500k per hour for organizations/groups. This allows me to only engage with a few clients at any point in time. As The Money Engineer brand grows, these rates will be increased gradually.

A lack of keen understanding of your prices can lead you into trouble. If in doubt consult a good accountant to run the numbers for you. Remember the right price sends a signal to the market of the quality and effort which goes into your service and product offering.