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Rhonda Abrams, Special to USA TODAY Published 7:00 a.M. ET Jan. 28, 2021
Ever since the early days of the pandemic, small business owner Mario Hernandez has been finding ways to help his California desert community. USA TODAY
“How much should I charge?” That’s one of the toughest questions a small business owner faces. It’s true even when you’ve been running your business for a while, but it’s particularly perplexing when you’re pivoting to a new line of business – perhaps because of COVID – or launching a new business, product or service.
Setting prices is more of an art than a craft. Large companies spend fortunes on consulting firms that specialize in pricing strategies, so don’t be surprised if you have trouble. So how do you know where to set your prices when you’ve never sold that product or service before?
First, let’s look at a few pricing models:
► Fixed pricing. You sell your product or service at a set price. You may have sales or discounts, but the price is generally established. The price might be based on:
- Your costs – you figure out your costs and then you set your prices to make a reasonable profit.
- Perceived value – due to other factors, such as your brand, reputation, convenience, quality – you charge more than on just your costs.
► Hourly pricing. Typical with professional services and some contractors and trades. With some trades, the pricing might be “time and materials” – adding the cost of materials to the price.
► Project pricing. You negotiate an agreed upon price before start of the work; payment dependent on completion.
► Dynamic pricing. The price changes depending on demand. This is now typical in airline prices and, frequently, in sports stadium tickets.
► Subscription. Customers pay you an ongoing amount. Almost all digital services are priced this way, but also “memberships” such as gym memberships are subscriptions.