You have a new business and you don’t know how much to charge for your product or service. Trust me, you aren’t the only one with this problem. Joining me now to discuss how to set prices we have Chartered Accountant and Managing Director of Balance and Compliance Enterprise, Gary Messado.

Understanding potential customers, market key to setting prices

Chartered Accountant and Managing Director of Balance and Compliance Enterprise, Gary Messado has said that understanding potential clients and competitors can help entrepreneurs set the right prices for their products and services.

According to him, not setting the right price will lead to profits being elusive, even though costs may be minimal when just starting out and trying to get a share of the market.

He reasoned that four years into his business, he’s still trying to figure things out but noted that the most fundamental place to start would be to create a budget for the company.
This he said will highlight the recurring expenses and help entrepreneurs determine the minimum they should be making to pay bills, staff, while still generating a profit.

“You have to start to recognize that there are input costs in the business that you have to ensure your pricing can cover. Many times people are just running a business and pay little attention to the accounting information and so some businesses are running at a loss because it’s just money coming in and money coming out and not taking a stock of how much I’m spending versus how much I’m collecting,” he said.

Massado said business owners must think about prices if they want to grow their operations, but added that those prices cannot be set in a vacuum. That’s what it’s important to understand the market within which the company would be tapping into.

“You need to figure out who are your customers. I think the way to start a business is small, its an ideal way to start because it allows you to know where your sweet spot is, who you are trying to serve in the market place and in a real way your customers will help you to figure it out because in reality, if they are supposed to take your product they are supposed to be able to afford it,” he explained.

He said businesses should pay attention to not only customers but also competitors to understand how others are serving the clients they are trying to service.

If there are players in a space longer than you are, you are going to need to earn your space in the market, so I don’t think you should necessarily be trying to be at the same price point with your competition if you’re starting out but you should pay attention to how people are responding to competitors.”

He reasoned that gaining an understanding of the market will help companies determine their overall strategy.

If there are a tonne of people in the space, the market will dictate what you can charge but if there really aren’t many people supplying what you’re offering, that means the market is underserved then that gives you some room in setting a price for the market,” he said.

He added that gaining an understanding of the supply and demand ratio for a product/service in the targeted space for operation would also be beneficial.

“You may come to realize that what the market is looking for is not maybe better prices but something more reliable, of better value, more convenient and that may show you that you shouldn’t really be trying to be the cheapest but instead be looking how you can meet that demand,” he added.

Messado said it’s also good to have mentors and friends who can share their experience with a similar business who can guide you in making pricing decisions. He said entrepreneurs should also have a curious nature to be bold in getting information from their competitors.

“Who they are today and what they are able to charge for a product or service wouldn’t have been what they were able to charge initially…so there’s a lot to benefit from getting wisdom from people who have gone before you for sure,” he said

As it relates to raising prices, Messado shared that in itself remains a sensitive matter, and has advised anyone looking to do so to ensure that they are paying careful attention to the market to be able to navigate as required.

“If inflation is causing an increase it would be foolish to continue to operate at the same price
There are market conditions that you have to be sensitive to and respond to as a business owner…dont be drastic, ensure you understand your customers, if they are happy, they might not mind paying more but if people aren’t excited about your product it might not be the best time to raise prices,” he said.