How to use pricing to maximise profitability

Without a doubt pricing your product or service is one of the most important decisions a business owner can make.

Price too low and the perception of your product or service can be deemed as poor quality. Priced too high and you simply won’t attract customers.

Pricing fascinates me and I could happily talk to you about sales forecasting, business goals, planning and pricing strategies for hours on end. As you’re a busy running your business you’re unlikely to have the spare time to listen.

Here are some quick pricing tips that’ll help shape a more profitable business for you.

How do you move forward using pricing to become profitable?

You probably already know the basic principle of pricing which is to add up all your costs and then decide on a reasonable amount to add on to achieve a profit.

The basic principle remains a good starting point for determining pricing structure for your business, however, it doesn’t take into account 2 other equally important pricing factors:

  • What your customer is willing to pay
  • How much your competitors are charging

Some business owners are content to break-even but I can categorically say they are doomed to fail and I won’t let that happen to my clients.

How do you choose a suitable pricing strategy?

Look at the type of business you are running, customers you are targeting and consider your long term goals.

Then identify which of the 5 strategies, below, reflects your business aims.

5 Pricing strategies:

  1. Penetration: set a reasonably low price, works well to launch a new product into a marketplace and encourage new customers to try.
  2. Skimming: set a relatively high price to boost sales and attract early adopters, works well for premium products like Apple.
  3. Discount pricing: heavily reducing the price at the expense of quality of the service or product, works well for bargain hunters and budget end of the market place.
  4. Loss leaders: products or services that make little or no profit but can work well to encourage customers to try and consider buying additional product and services.
  5. Image: charging a premium price as the customer is willing to pay irrespective of price but based on perception of quality and luxury, which only works well in high end market.

How do you reach a definitive price that makes you money?

There’s not one simple solution as pricing cannot work in isolation.

You can’t control external factors such as a competitor changing their pricing strategy, new entrants to market, alternative products or services launching to market or external political and legal factors changing the shape of the marketplace and of course customer behaviour changing.

There are a number of factors you can use to influence the effectiveness of your pricing strategy.

Here’s a quick guide to defining price

  • Start high. Higher pricing shapes perception and it’s much easier to lower prices later on. Short term discounts entice customers whereas hiking up prices can force customer to run to competitors.
  • Talk to your customers. Purchasing is rarely based on price alone. Research what they like and don’t like. Be upfront and ask if the price you’re asking is fair or identify areas where you add value that competitors don’t.
  • Pricing reviews. Regularly track sales volume against pricing changes to spot optimum sales points (be mindful of seasonal highs and lows).
  • Monitor cash flow. The lifeblood of any business must cover the costs that impact your bottom line and pricing strategy. It must also cover any unexpected costs that would make a dent in your profit.
  • Business analysis. Spend time reviewing business costs and identify efficiencies that can be made to increase profitability.
  • Competitor analysis. Keep a close eye on competitor pricing strategy, additional offers and their market share against your own share.

Above all be flexible.

At Murrison & Wilson we provide the business tools, software and expert friendly advice that gives our clients the confidence to price their products and services accurately and start turning a healthy profit.

If you’re struggling with pricing or looking for business advice or tax planning to take your business to the next level call on 0141 290 0262 or email

Or get social by connecting via LinkedIn or Twitter.

All the best

Simon Murrison


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