![]() By spending 30 minutes on competitors’ sites finding all their pricing information you can have a “pricing strategy.” It’s also unlikely to go wrong. Unsure of the initial value of your product, and not wanting to go too high or too low, it seems obvious that you should look at the other companies selling similar products to decide your own price point.Īgain, calculating price from competitors has two main bonuses: Then all it takes is for one of their own SaaS suppliers to raise prices and they are losing money on every sale.Ī pricing approach that utilizes competitor prices as a benchmark, rather than setting a price based on company costs or customer value.įor a SaaS company starting out in a new industry, competitor-based pricing strategy will seem the logical way to go. Then the margin is cut to 5% and then 0%, where the company is only breaking even. This works well for a few months until some unexpected costs crop up. Imagine this example: A company calculates costs, and then adds a healthy 15% margin on top. That might work a low cost product, or venues like a gas station, but it won’t work for a SaaS company. If a SaaS provider is using value-based pricing and has changed their prices, you can’t constantly change the price of your product to maintain the same margin. You can’t change your prices to account for every new hire, which means your profits will take a hit.Īlso, costs fluctuate over time. Your initial costs might include only hosting and some development, but as you grow you’ll have to factor in sales, marketing, and a number of other previously unknown costs. You won’t necessarily know all your costs, and therefore can’t know if you’re going to cover your costs. Yet, cost-plus pricing is anything but a sure win. ![]() Taking those advantages at face value, cost-plus pricing seems like a great idea and certainly a good starting point, with little overhead and definite profits. ![]() As this is cost-plus pricing, you know that you will be adding a certain margin on top of your costs as pure profit. ![]() No market research, no data analysis, no strategizing. As long as you know how much your costs are, it’s trivial to work out your price. With the expansion of eCommerce and Big Data, this last monitoring factor can be seen as a downside if it is not carried out properly.Implementing cost-plus pricing has two main benefits: It is important for companies to keep their production costs in mind, as well as managing the time they spend monitoring competitors and the prices set by them. The more you know about your rivals and what they are doing, the better you can decide how to manage your prices. Keeping an eye on existing and emerging competition by using a competitor website price monitoring software will allow you to be more competitive. Consequently, competitors may need to price their products lower or risk losing potential sales. In highly competitive markets, consumers judge products with similar features by the prices. ![]() This pricing method is normally used by businesses selling similar products, since services can vary from business to business, while the attributes of a product remain similar. It might forget about existing competitors.Ĭompetition-based pricing, also known as competitive pricing, consists in setting the price of a product based on what the competition is charging.Many companies mass-producing goods such as textiles, food and building materials use this pricing technique. The ideal thing to do, would be setting a price in between the floor and the ceiling. The floor and the ceiling are the minimum and maximum prices for a specific product or service – the price range. In this short guide we approach the three major and most common pricing strategies:Ĭost-based pricing strategies uses production costs as its basis for pricing and, to this base cost, a profit level must be added in order to come up with the product price.Ĭost-based pricing companies use their costs to find a price floor and a price ceiling. Let’s have a look at the most common pricing strategies. The right price can generate more sales while the wrong one can make potential customers look elsewhere. Price setting is part of the marketing process and it requires an in-depth market reasearch. ![]()
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