Defensive entrepreneurs have many challenges to face everyday-- pricing is a big one.  How to price your product or service is very important.  There are many ways to approach pricing a product or service, here are three common approaches:

• Accounting cost plus-- Product costs $1, 25% margin, retails for $1.25,  The problem: What if people are willing to pay $2?
• Competitive comparison-- Competitor A charges $1.75, competitor B charges $2.25, I can go low cost at $1.50 or middle of the road at $2.00 or premium at $2.50
• Market will bear-- The highest amount I can charge and still sell the product or service

The last one is the most attractive, but it is more art than science like the other two approaches.  These ideas tend to work best for new products, but what if you are established?  If you have an established product or service, here is a simpler way to look at the issue if you already have a product or service in the market . . .

Let's call it "Equilibrium Pricing".  Here is the approach:

• If you are turning away business-- you price is probably too low
• Likewise, if you have excess product or capacity . . . you are probably priced too high

Simple I know, but reality for many.  The solution?  Experiment with subtle and not so subtle pricing changes up or down accordingly.  You will find the ideal pricing-- the equilibrium.

There are other pricing approaches that I will discuss in a future post.

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