To help small businesses thrive, we asked thirteen Founders and CEOs about their most effective pricing strategies. From adopting a usage-based pricing strategy to creating urgency with time-limited discounts, these leaders share their insights on how to price your products or services for growth. Dive into their wisdom to find a strategy that suits your business.
Adopt Usage-Based Pricing Strategy
In the dynamic world of small business, determining the right pricing strategy can be pivotal. For my enterprise, the game-changer was adopting a usage-based pricing strategy. This approach allowed customers to pay according to the extent of their use, making our offering more appealing and accessible.
What truly set us apart, though, was our ability to combine the best-quality features at a price point that’s more affordable than most competitors. By offering top-notch features at a cost that’s less intimidating, we found a sweet spot that resonated with our target audience.
This strategy not only made our products and services more attractive but also fueled our business growth, establishing a stronger connection with the market, especially among decision-makers in the B2B sector.
Implement Value-Based Pricing
One pricing strategy that has been pivotal in the growth of this small business is referred to as “Value-Based Pricing.” Rather than solely focusing on production costs or competitor pricing, the company sets its prices based on the perceived value offered by their products or services. By thoroughly understanding the target audience’s needs and recognizing the unique value they provide, they have successfully justified a premium price point for certain offerings.
This approach not only enhances profit margins but also establishes their brand as a top-tier choice within the market, attracting a loyal customer base willing to invest in quality and value.
Offer Affordable Dental Care
One of the major draws to our dental company is that we do not require our patients to have dental insurance. Furthermore, the prices for our dental procedures are about half the amount compared to the typical range. We believe that everyone should be able to access dental care, no matter their income, and our customers appreciate how much we value affordability.
Switch to Annual Billing
Exclusively using annual billing has been hugely advantageous for our business and has made cash flow substantially more manageable.
Like many subscription businesses, we started with a monthly billing structure and experienced mixed success. Although we charged more per month, in practice, the payback period was just too long, especially for a bootstrapped business like ours. Additionally, many clients would simply churn after a month or two and then re-subscribe for another month the following year.
Annual billing, however, has proven to be much stickier, and our churn rates have dramatically decreased. But more importantly, receiving a full year’s worth of revenue upfront has greatly improved our cash flow, providing an immediate return on sales and marketing spend. This cash is then reinvested into further marketing and sales efforts, keeping the operation running smoothly.
Build Trust with Transparent Pricing
Every homeowner who hires us mentions our transparent pricing. They know exactly what the labor costs are, and we are not turning a profit in any secretive ways. Honesty is extremely valuable in every business.
The more transparent your business is, the more trust you gain. I wish more companies would realize this instead of coming up with convoluted profit schemes designed to keep their customers off balance.
Start Low and Adjust Prices
In 13 years running FlyNumber, a unique pricing strategy has been found successful: starting low with new phone numbers and adjusting based on customer reaction. Beginning with a lower price point allows for gauging how customers respond and makes them feel like they’ve gotten a special deal.
Unlike the alternative of starting high and then lowering prices, which can leave early customers feeling frustrated, this approach builds trust and long-term satisfaction. It’s been a win-win for growth and loyalty, and it’s a key factor in what’s made FlyNumber thrive.
Choose Competitive Over Discount Pricing
My business has found that competitive pricing is better than being a discount option. We’re not interested in getting into a race to the bottom.
By having broadly competitive prices, we’ve been able to grow by offering better value at the same price point. We’ve found it better to offer a higher-quality service with lower margins than a cheaper service that provides less value to our clients. This has allowed us to grow while helping to differentiate us from similarly priced competitors.
Provide Price Quotes Before Sign-Up
One pricing strategy that has helped grow my small business is to give potential clients a price quote before they sign up. Many people are hesitant to commit to a project without knowing the price, and this can lead to them not even finishing their application.
By providing an initial idea of what they can expect, I can get more people to move forward with the process and hire me, which in turn helps grow my business.
Attract Customers with Tiered-Pricing
Implementing a tiered-pricing strategy, offering different levels of products or services with varying features and prices, has helped our small thrift store in Woodlawn, MD, attract a broader range of customers. This approach allows us to cater to different budget preferences while encouraging customers to explore higher-priced items for added value.
Switch to Seat-Based Pricing
This spring, we switched from a modular-pricing strategy to fully seat-based pricing. Google Workspace inspired our approach. This approach is easier for customers to understand. It also scales the value of each feature with the size of the customer’s laboratory. Particularly for smaller operations, this strategy works well to reduce the cost of some of our more advanced modules.
Boost Sales with Product Bundles
Customers love bundles because they know they’re getting more value when spending their hard-earned money. So, we bundle our two products and sell them at a slightly lower price than the sum of their individual prices. Doing so increases our sales and revenue because of the perceived discount and the convenience of purchasing both items together.
Moreover, it helps avoid having excess inventory, which is vital for a beverage brand. However, it’s important to balance perceived value and profitability. The price reduction should be significant enough to attract your customers’ attention and encourage them to opt for the bundle, but not so deep that it leads to losses on each sale.
Reframe the Price List
The information was sourced from Richard Shotton’s excellent book, The Choice Factory.
Initially, my list (photos at events) had prices for 1, 2, and 3 photos, with 3 photos costing £30. The average sale was just below £30.
By adding three more tiers—5 photos, 8 photos, and 10 photos—the average sale moved up to just below £50 for the same number of customers.
This shift occurred because guests were initially buying the most expensive item on my price list. Altering the list meant that guests were purchasing midway through the list, not at the top.
It’s easier to get customers to spend more than to acquire more customers, and this can significantly enhance your bottom line.
Create Urgency with Time-Limited Discounts
Creating a false sense of urgency has boosted the sales of our business. This pricing strategy falls within a psychological premise. By using time frames for sales, products and services were sold in a time-efficient manner.
With a pricing strategy like this one, the clientele was expanded. The discount factor is enough to get everyone on board with this strategy. Discounts are limited to 10-20% to maximize profits while increasing the number of sales. It has proven to be highly effective so far. This strategy ranks top for our small business.