Before I wrote this I went to chatGPT and asked that clever guy "Generate an article about pricing model for small businesses", the answer I got was so distant from what we will discuss today; so you can imagine. I am thrilled I beat that punk AI in this.

I will tell you a story about my friend Ken, I have never met anyone as persistent as him; I grew to admire his personality over the years; and he has lived quite a fascinating business life.

When it comes to pricing your products he tells me it is not as simple as looking at the product and going R400; it is a bit more complex than that. 

RULE 1:

No matter what happens never ever price below your cost; cost is quite a broad subject as well but Ken did simplify things for me, everything has a cost price, and I am not talking about your time here; let us define cost as whatever amount you pay to get the product in on your shelf. Transportation, Supplier Costs, and Rent will determine your primary costs.

So Rule 1 is never price below your Cost.

Come to think of it that is the only rule we have, the rest is just... Well let's get into it.

Market-Related

With market-related pricing, you only need to worry about what your competitor is charging and you just have to stay competitive in the extra services and going an extra mile, and that's all. This method could easily ruin your business, or make it flourish for a short time until the guy around the corner decides to come after you and underprice as you have never seen.

Remember all those small grocery stores we had before Spaza shops?

Joe the Plumber

I have a plumber I use normally, he actually does everything, like a Jack of all trends kind of guy. He would first look at you and try to estimate how much he could squeeze out for his bill. The both of us end up negotiating the rate down. This is one of the worst ways of pricing because it normally does not grow your business instead it keeps the food on the table, and most of the time you may charge below cost without even knowing it.

Respect your business.

Chase Them

So I ask Ken the golden question. When Ken started his business he was charging ridiculously low rates for his services, when the business improved his pricing model stayed the same. Now that was a problem, when your product is too good compared to rates, people will be attracted to you; but what happens when you have way too many clients? Having too many clients and very small margins improved the cash flow but meant the quality of service and product had to be compromised. Imagine Ferrari trying to sell as many cars as Toyota.

It was time for going back to the drawing board, and he did. He doubled the fee for his rates and products; but still that was not enough to chase all these clients flocking to his business. Long story short he charges 4x his competition and he is still busy.

Being the cheapest is not always the best approach sometimes you just need 4 clients a month and they will pay your bills for the whole year and still have some change.

If your product has a value that is unmatched, your pricing ought to reflect that.

Location

I bought a cell phone charging cable from a shop in the location for R25 and I normally pay R60 for the same cable. Sometimes when your business is in a certain location, you are automatically forced to charge whatever amount your customers can pay for the product.

This is not a lecture or guide, it's just a lame story.

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