A Winning Pricing Strategy
This is the 10th installment in a series on Starting a Business as Mission Company
Setting the right price isn’t just about crunching numbers; it’s about understanding your market, knowing your costs, and aligning your prices with your mission. In this post, I’ll guide you through the steps to develop a pricing strategy that not only supports your business but also stays true to your purpose.
Why Your Pricing Strategy Matters
A pricing strategy is how you determine the right price for your products or services. It’s a crucial part of your business plan because it affects everything—from your profit margins to how customers perceive your brand.
For BAM startups, pricing is even more significant because it’s not just about making money; it’s about making an impact. Your pricing should reflect the value you bring to your customers and the communities you serve. It should also ensure your business is sustainable so that you can continue your mission long-term. And, it should cast a positive light on the Gospel.
Get to Know Your Market
Before you can set the right price, you need to understand who you’re selling to. Market research is your first step in building a solid pricing strategy. Market-based pricing is the foundation of strong business.
Start with your target customers. Who are they? What do they need? How much are they willing to pay for a solution to their problem? Understanding your customers’ pain points and their purchasing behaviors will give you a better idea of how to price your products or services.
Next, look at your competitors. What are they charging for similar products or services? What value are they offering at that price? This will help you identify where you can position yourself in the market—whether it’s offering more value at a similar price or providing a more affordable alternative.
Finally, clarify your value proposition. What makes your product or service unique? Why should customers choose you over the competition? Your value proposition is key to determining how much your customers will be willing to pay. In the competitive landscape, you can be the “quality leader” or the “lowest price provider,” but you can’t be both at the same time.
Know Your Costs: The Foundation of Pricing
Once you have a clear understanding of your market, it’s time to dive into the numbers. Knowing your costs is fundamental to setting a price that not only covers your expenses but also allows you to turn a reasonable profit.
Calculate your fixed costs. These are expenses that stay the same regardless of how much you sell, like rent, salaries, and insurance. Then, figure out your variable costs—expenses that fluctuate with your sales volume, such as materials, shipping, and packaging.
Now you can determine your markup. A markup is the percentage added to your costs to arrive at your selling price. For example, if your total costs for a product are $10 and you apply a 50% markup, your selling price would be $15.
It’s also essential to conduct a breakeven analysis. This is where you determine the minimum price you need to charge to cover all your costs. If you sell below this price, you’ll lose money, which is clearly not sustainable.
Consider Value-Based Pricing
While cost-based pricing is straightforward, it’s not the only way to set your prices. Value-based pricing is another approach that focuses on what your customers perceive as the value of your product or service.
Think about it this way: How much are your customers willing to pay for the benefits they receive from your product or service? This is where your value proposition comes into play again. If you offer something unique—like superior quality, exceptional customer service, or a social impact—customers might be willing to pay more.
To set value-based prices, start by understanding what your customers value most. Is it the quality? The convenience? The fact that their purchase supports a good cause? Then, communicate this value clearly. If customers understand the benefits they’re getting, they’ll be more likely to accept a higher price.
For BAM businesses, your social impact can be a powerful value driver. Many customers are willing to pay a premium for products or services that make a positive difference in the world. Don’t be afraid to highlight how your business is helping communities, creating jobs, or supporting sustainable practices. This can justify a higher price and attract like-minded customers. For example, if you are providing organically grown produce, you can likely charge more than a grower of produce using chemicals; just be sure an let your customers know that’s what you are doing.
Keep an Eye on the Competition
Competitive pricing is about knowing what your competitors are charging and positioning yourself accordingly. This doesn’t mean you have to be the cheapest option in the market, but you do need to be aware of where you stand.
Benchmarking is a useful technique here. It involves comparing your prices with those of your competitors to see how you stack up. If your prices are higher, you’ll need to justify this with additional value. If they’re lower, consider whether you’re leaving money on the table or if you’re strategically positioning yourself as a more affordable alternative.
Positioning is key. Are you positioning your product as a premium offering, a mid-range option, or a budget choice? Each position comes with its own pricing expectations. A premium product can command a higher price, but it must deliver on that promise. A budget product, on the other hand, should be priced low enough to attract cost-conscious customers but still offer enough value to satisfy them.
In some cases, you might consider price matching or undercutting your competition, especially if you’re entering a crowded market. However, this strategy can be risky if it leads to a price war. It’s often better to compete on value rather than price.
Explore Different Pricing Models
When it comes to pricing, one size doesn’t fit all. Depending on your business model and market conditions, you might choose a different pricing approach.
Penetration Pricing
This strategy involves setting a low price initially to attract customers and gain market share. Once you’ve established a customer base, you can gradually increase the price. This approach is effective for new products or when entering a new market, but it requires careful planning to ensure it doesn’t erode your profitability.
Skimming Pricing
If you have a unique or innovative product, you might opt for skimming pricing. This involves setting a high price at launch to maximize profits from early adopters. As the product becomes more widely available and competition increases, you can lower the price to attract a broader audience.
Subscription/Recurring Revenue
For services or products that customers use regularly, a subscription model can be a good fit. This involves charging customers a recurring fee—monthly, quarterly, or annually. The key to success with subscriptions is delivering consistent value so that customers feel it’s worth continuing to pay. In my consulting business, I charge a flat monthly fee regardless of how much or little work I do in each month.
Each pricing model has its pros and cons, and the best choice depends on your specific business and market conditions. The important thing is to align your pricing model with your overall business strategy and mission.
Be Ready to Adjust Your Prices
The market isn’t static, and neither should your prices be. A successful pricing strategy requires flexibility and the willingness to adjust as needed.
Seasonal Pricing
Some products or services have higher demand at certain times of the year. For example, a BAM business selling handcrafted holiday decorations might increase prices during the festive season when demand is high.
Promotional Pricing
Offering discounts or special deals can be a great way to boost sales, especially during slow periods or when launching a new product. Just be careful not to rely too heavily on promotions, as this can devalue your brand over time.
Geographical Pricing
If you’re selling in different regions, you might need to adjust your prices based on local economic conditions and purchasing power. For instance, what’s affordable in one country might be out of reach in another.
The key to dynamic pricing is to monitor your sales, costs, and market conditions regularly. Be ready to tweak your prices to stay competitive, meet customer expectations, and maintain profitability.
Stick to Your Ethics
In BAM, pricing isn’t just about business; it’s about sticking to your mission and values. Fairness, transparency, and integrity should be at the core of your pricing strategy. People watch us as believers to see how we act and conduct ourselves in the marketplace.
Fair Pricing
Make sure your prices are fair and accessible to your target market, especially if you’re serving communities in developing countries. Overpricing can alienate customers, while underpricing can undermine your business’s sustainability.
Transparency
Be open about how your prices are set. Customers appreciate honesty, and transparency can build trust and loyalty. Explain your pricing in terms of the value you offer, the costs you cover, and the impact you’re making.
Mission Alignment
Your pricing should reflect your commitment to your mission. For example, if your goal is to create jobs in a disadvantaged community, ensure that your pricing allows you to pay fair wages and support local development.
Balancing profitability with Kingdom impact can be tricky, but it’s essential for long-term success in BAM. Remember, your business needs to be sustainable to continue making a difference.
Implementing Your Pricing Strategy
Now that you’ve developed your pricing strategy, it’s time to put it into action. This involves aligning your team, testing your prices, and being prepared to make adjustments.
Internal Alignment
Make sure everyone in your company—especially those in sales, marketing, and finance—understands and supports the pricing strategy. Consistency is key when communicating prices to customers.
Testing and Feedback
Don’t be afraid to test your prices on a small scale before rolling them out across the board. Collect feedback from customers and analyze sales data to see how your pricing is performing. Be open to making adjustments based on what you learn.
Regular Review
Pricing isn’t a set-it-and-forget-it task. Regularly review your pricing strategy in light of market changes, cost fluctuations, and your mission objectives. As your business grows and the market evolves, your pricing strategy should evolve too.
Adjust for Inflation
In many regions, inflation can impact both your costs and customers’ purchasing power. Regularly assess whether your prices need adjusting to keep your margins strong without losing customer trust.
Monitor Competitor Changes
Competitors can shift their strategies, and it’s important to stay informed. If a competitor lowers their prices or introduces a new offering, you’ll need to evaluate whether you should respond with price adjustments or by enhancing the value you offer.
Stay True to Your Mission
As you scale, there might be pressure to adjust prices in ways that could compromise your mission. For example, cutting costs by lowering wages or sourcing cheaper, less ethical materials could hurt your brand and mission. At the same time, we should not be ashamed or apologetic for pricing at levels that ensure a healthy profit. Always keep your core values at the forefront when making pricing decisions.
Long-Term Vision: Pricing for Sustainability and Kingdom Impact
The goal of your BAM startup is not just to survive but to thrive—both financially and in fulfilling your mission. A well-crafted pricing strategy is essential to achieving this balance. As you refine your approach, remember these key points:
Flexibility is Key
The business landscape is always changing, and a flexible pricing strategy allows you to adapt to new challenges and opportunities. Whether it’s responding to market trends or adjusting for new costs, being agile in your pricing will help your business remain competitive.
Consistency Builds Trust
While flexibility is important, so is consistency. Sudden, unpredictable price changes can erode customer trust. Aim for a balance where adjustments are well-communicated and justified by clear, customer-centered reasoning.
Always Align with Your Mission
Never lose sight of the mission that drives your BAM business. Whether your focus is on community development, environmental sustainability, or ethical production, your pricing should reflect and support these goals. By doing so, you’ll build a loyal customer base that values your commitment to making a positive impact.
Regular Review and Adjustment
Your pricing strategy isn’t something you set once and forget. Regularly reviewing and adjusting your prices ensures that they stay relevant and effective in achieving your business and mission goals. Keep an eye on market trends, cost changes, and customer feedback to make informed decisions about pricing adjustments.
Conclusion
Developing a pricing strategy for your BAM startup might seem daunting at first, but it’s an essential step in ensuring your business’s success and sustainability. By understanding your market, knowing your costs, considering value-based pricing, and staying true to your mission, you can set prices that not only attract customers but also support your long-term goals.
For more information on Business as Mission, we recommend the online course, “Creating Your BAM Lean Canvas” at this link— https://thirdpathinitiative.com/all-courses . It is available in 6 languages: English, Spanish, Azeri, Russian, Ukrainian, Romanian. Other resources include https://businessasmission.com and Business as Mission by Michael R. Baer available at https://www.ywampublishing.com/p-961-business-as-missionbrthe-power-of-business-in-the-kingdom-of-god.aspx