In my last article, I gave an overview of a successful business plan. Today I am going to talk about creating products and services in order to increase profits.
The more value you give to your clients, the more they are willing to pay. This is the golden rule. There are 4 approaches you can take:
- One product or service; One pricing level: A freelancer who charges $50/hour for his services uses this model. Obviously this type of income is limited by the number of hours the freelancer can work in one week. I only recommend you use this option in two cases only:
- Your product/service is expensive and selling a few ones is enough
- Your product/service is cheap and you are able to sell a lot
- One product or service; Multiple pricing levels: A company which creates websites offers packages priced at $500, $2,000 and $10,000 . The good thing about this model is that you’re giving people choice. Your prices suit everyone, so no one will find your products expensive. Moreover, you are able to offer more expensive options for people who want a greater value.
- Many products and services; One pricing level: A shopping mall uses this model. Same as above, this model gives people choice, and is greatly suitable for places where the population is low, such as rural areas or smaller countries.
- Many products and services; Multiple pricing level: I personally fit this option. By providing products and services priced at multiple levels, as well as consulting services, I am able to offer my clients diversity and choice. Clients conduct business with me in a variety of ways, according to their own budget and needs.
As for pricing your products and services, it all depends on the following criteria:
- Your total cost for creating the product or service
- How your competitors are pricing similar products, if they exist
- How much your customers are willing to pay. Conduct an informal survey by asking people around you what would the idea be worth.
- Selling a few products with minimum profit in order to attract customers who are willing to pay for your other products
- Competing on price is not an option, there will always be a lower price.
- Follow your gut. No one knows better than you how much your products should be priced.
While creating your products and services, keep in mind that you want to give your customers the ability to conduct more business with you. If you fit the second, third and fourth categories mentioned above, you’re already doing it. If you’re in the first category, you would want to make sure that customers will need to buy your product more than once, or have a subscription-based model.
Now that you have defined your products and services, we will take a look at how to assess your target customers and their needs in the next article.