In this article, we will discuss 6 b2b pricing guidelines that will help you boost your b2b profitability! Charging the right price for your b2b products and services is essential to achieving profitability. If you charge too much, you may lose customers to your competitors. If you charge too little, you may not be generating enough revenue to cover your costs.
Remember, your most crucial business goal is to achieve maximum profitability, not sales dollars or unit volume. Only profitable sales pay your bills.
selecting your specific product/service pricing strategies
establishing your actual selling prices
Also, you should.
do your homework and gather competitor pricing from the marketplace
Do NOT call your competitors for their prices - this is illegal in the U.S.
Below are general guidelines for developing the pricing of a new product/service for your business. Unfortunately, there is no formula to determine the "best pricing." Here is an overview of an example of a B2B Pricing Strategyfor small business.
1. Make Product or Service Marketing Mix Decisions Developing a portfolio of products and services is vital to profit success. Having a variety of products and services at various pricing levels and profit margins increase your flexibility in setting prices and ability to set promotional and discount pricing.
define the number and type of different product or services by price level high, medium and low and by profit margin dollars
identify the projected sales volume distribution of your products or services
describe specific promotional tactics that will be necessary for each product or service to meet volume goals in your sales forecast
2. Project Customer Demand It is essential to understand the impact of your pricing on sales by estimating how your customer demand may fluctuate with price changes. For existing products or services, you can experiment with prices above and below the current price to determine the impact of pricing on customer demand. If your volume does not decrease with raising your price, this indicates that taking price increases might be feasible.
Sometimes taking a price increase even with a decrease in demand is advisable as long as the total profit margin dollars generated by the lower volume exceeds the total profit dollars produced by the product previous to the price increase. This price increase tactic is an excellent example of pricing for profit.
3. Calculate Product/Service Cost To make a profit from the launch of a new product or service you need a basic understanding of the costs involved. The unit cost of your product/service sets the lower limit of what you might charge and determines your profit margin at higher prices.
The total unit cost of your product or service is made up of a fixed value regardless of the quantity you produce and the variable cost of providing each additional unit. Your pricing policy should consider both these costs.
fixed costs - office rent, interest on the debt, insurance, equipment expenses, business licenses, and salary of permanent full-time workers
variable costs - production labor time, materials & packaging
4. Understand External Influences Pricing must take into account the competitive and legal environment in which your company operates.
Competitor Pricing Actions
what are the implications for your business
competitor reactions to your pricing decisions
For example, setting the price too low may risk a price war that may not be in the best interest of anyone. Pegging the sales price too high may attract a large number of competitors who want to share in the profits.
Legal Constraints
There may be price controls that prohibit pricing a product/service too high
Offering a different price for different customers may violate laws against price discrimination
Pricing it too low may be considered predatory pricing or "dumping."
Collusion with competitors to fix prices at an agreed level is illegal in the U.S.
5. Establish Pricing Objectives - Pricing objectives state the overall goals you want to achieve through your pricing efforts. Because, pricing affects most business areas including finance, accounting, and production. The primary pricing objectives are market share, meeting competition and profit.
Maximize Profit - seeks to maximize current profit, taking into account revenue and costs. Current profit maximization may not be the best objective if it results in lower long-term profits
Maximize Revenue - seeks to maximize current revenue with no regard to profit margins. The underlying objective often is to maximize long-term profits by increasing market share and lowering costs
Maximize Quantity - seeks to maximize the number of units sold or the number of customers served to decrease long-term costs as predicted by the experience curve
Price Equilibrium - seeks steady state pricing to avoid price wars and maintain a moderate but stable level of profit
6. Determine Prices - using the information collected in the above steps, select a:
pricing method
develop your pricing structure
define if, how, when and under what specific circumstances you will use any promotional or discount pricing
Bottom Line Following the pricing; guidelines outlined above will help your firm to make sound pricing decisions and establish a solid foundation towards achieving and maintaining business profits over the long haul.