Pricing a product or service is perhaps one of the most critical decisions a business owner will ever make. However, very few business owners have the background to feel comfortable with these skills.
When you started your business, you had a vision. This vision probably included the size of the company you wanted, the type of employer you wanted to be, and maybe even the online presence you wanted your business to have.
You probably didn’t think about product or service pricing in that initial idea. Few business owners do. Many business owners wait until they are well into their new business before deciding what to charge their customers. Most small businesses don’t have a solid methodology to set their pricing, much less consistently evaluate it.
A pricing strategy can make or break your financial goals. If you create a clear pricing strategy early for your business, you will be able to make more money in the long term. A business with a strategy knows when to adjust or pivot based on market factors. You will also be able to save yourself time by not guessing on the best pricing for your business.
Many companies avoid creating a pricing strategy because it’s intimidating. Many owners don’t have a background with numbers and might not know the first step to creating a pricing strategy. A pricing advisor such as a CFO or CPA can help you have the upper hand.
In this article, we will discuss 10 ways a pricing strategy advisor can help you build a strong foundation for your business.
What Is A Pricing Strategy Advisor
First, what is a pricing strategy advisor, and how can they help? A pricing strategy advisor is an accountant who has a background in creating pricing strategies with businesses. Pricing strategy advisors can be generalists who create plans for many types of businesses or specialists who work in one specific field.
Specialists often work in fields where pricing is a daily component of the business. For example, specific pricing strategy advisors work with retail businesses that may have large swaths of products to price in a competitive market. Similarly, airlines use a pricing strategist to develop strategies to price their airfares.
Pricing strategy advisors are researchers who know how to observe and follow a market to see which trends will influence your product’s price. They also understand costs associated with a product to factor in the margin when determining a specific strategy.
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How Can A Pricing Strategy Advisor Benefit Me?
When you look at a pricing strategy advisor from a distance, it might seem like they only have one function for your business: setting prices. Hiring a CPA of CFO can have myriad benefits to your business, including this setting a strategy around pricing.
Creating a clear pricing strategy will influence your business’s budget, financial reporting, and more. By giving your business the structure of a strong pricing strategy, you can free your company to think more creatively about different aspects of your business’s finances.
1. Creating A Pricing Model
There are many different models that companies can use to develop prices for their products and services. A pricing strategy advisor can help you and your company determine the best pricing model.
When a pricing strategy advisor comes up with a pricing model, they usually take a few of the most typical pricing models into account. They will incorporate two or three of these models into one master pricing model. This professional might also give you a few different models as suggestions. You may use them with different products that your company offers.
Some of the pricing models your pricing strategy may consider include:
- Hourly pricing
- Pricing by project
- Retainer pricing
- Value-based pricing
- Package pricing
- Performance-based pricing
- Equity pricing
2. Developing A Pricing Process
However, your pricing strategy advisor will not simply give you a pricing model and leave. Instead, they will coach you through all of the steps of the pricing process. The pricing model you develop will be a true collaboration between you and your advisor.
The pricing process generally includes the following steps:
- Consider influences on price
- Evaluating market and competitive factors
- Estimating the cost
- Creating pricing policies
- Creating pricing strategies
- Developing the price structure
Navigating these steps can be daunting for individuals who do not have a strong business background. A pricing strategy advisor has the background to teach their clients while they help them.
3. Planning Pricing Intervention
Your pricing strategy advisor can also help you plan places in your value chain where people can invest in your product before it hits the shelves. This will help your company achieve a higher return on investment without the customers footing the bill.
Because a pricing strategy advisor is an expert in business and economics, they can help you think outside the box to increase your return on investment for services or products.
4. Helping With Terminology
The first step of a project is always ensuring that you have the correct terminology at your fingertips. The proper terminology can differentiate between a well-placed Google search and a useless rabbit hole.
With the help of your pricing strategy advisor, you will know all of the terminologies you need to know to create your pricing model. This terminology will be beneficial as you interface with other members of the business world and develop your business strategy because it will give you a common language to talk to people with when you start collaborating on products and services.
5. Identifying Appropriate Comparables
Comparables are exactly what they sound like. They are products and services that are comparable to the products and services that your company offers. If you use a comparables pricing model to help you determine your prices, you need to find comparables that give you a good sense of how you should price your products.
This might seem like a common-sense way to approach pricing. But comparable pricing can be a little messier than you might expect. If you are working with a brick-and-mortar business, your business’s market is relatively confined geographically. This means that to find suitable comparables, you will need to find another company in your area selling a similar product. Alternatively, you could find a company selling a comparable product in a similar market. For example, you may need to find another company working in a market that has similar financial demographics. This can be tough, as there is so much variation between different markets (even in the same county).
6. Help Businesses Work With Appraisers
This is specific to businesses like real estate, where there is a specific field of people who professionally appraise products before sale. Working with appraisers can be difficult for businesses and individuals, so a pricing strategy advisor can be an invaluable aid in this process. A pricing strategy advisor can help you communicate with an appraiser and help you understand how the appraiser came to their price.
7. Training Marketing And Sales
Pricing strategy advisors are also a valuable resource for marketing and sales teams.
Having a sales team that understands the inputs and outputs of the financial model can be highly beneficial. Too often, sales teams don’t understand the “whys” behind what they are being asked to sell. This can lead to a lack of innovation and creativity within the sales team. The more they understand the rationale behind pricing, the more creative they can be in sales.
A pricing strategy advisor can build a set of guidelines for promotional pricing into the pricing model so that your company knows how to apply their pricing model when they want to promote a product or service.
8. Building Pricing Calculators
As a small business owner, you don’t have the desire or budget to pay for full-time resources to price your products. One benefit of using an advisor is they can often build out a model or calculator that you can use as an ongoing basis. This often comes in the form of an Excel sheet.
Within this Excel sheet, you’ll enter specific data to be used to determine the most appropriate pricing. This is a repeatable process that saves small business owners money yet gets them the answers they need.
9. Determining Willingness To Pay
A pricing strategy advisor can give your business a leg up by analyzing individuals in the market to determine willingness to pay. By understanding your customers’ economics, it is easier to price your products. Additionally, if you can understand the value of your product or service to the end consumer, you can better set your pricing.
If you can understand an individual’s willingness to pay, you can also understand the perfect price for your product to satisfy both you and the consumer.
10. Helping You Understand Comparative Marketing Analysis
Pricing strategy advisors who work in the real estate industry are experts in comparative marketing analysis, which is essentially the pricing strategy for real estate. As a field, comparative marketing analysis has grown over the years because realtors are looking at more and more complex sets of factors when it comes to determining how much a house should cost. Demystifying these factors and coming to a reasonable price is one of the greatest ways a strategy advisor can help your real estate business.
How Can A CFO Improve My Pricing Strategy?
What if your company could contract a pricing strategy advisor to help with your pricing decisions and hire a CFO at the same time? With virtual CFO services like the services we offer at Krieger Analytics, you can get the best of both worlds.
Our virtual CFOs are well versed in pricing strategies as well as budgeting, financial reporting, and accounting. By hiring a virtual CFO, you can get the financial advice that your business needs to get on the right foot financially without the hassle of hiring a position that you can’t afford. Hiring a virtual CFO can help your pricing strategy in three ways:
- A Virtual CFO Sees The Big Picture
Virtual CFOs are more than just pricing strategy advisors. They see your business holistically and understand how pricing decisions will impact your business as a whole.
- A Virtual CFO Is A Small Business Expert
Virtual CFOs are by design, for small businesses. Large businesses hire full-time CFOs and do not need our services, so we focus on the needs of small businesses.
- A Virtual CFO Collaborates Long-Term
Hiring a virtual CFO can be a long-term investment, as you can schedule regular meetings with them to discuss pricing strategy.
How Krieger Analytics Can Help You Conduct Market Research
Perhaps all of these steps seem a little overwhelming and you want to hire a professional to help you conduct your market research. Krieger Analytics offers high-quality market research along with all of its other business services. If you work with Krieger Analytics, you know that you will receive top-quality market research from highly-trained professionals. If you are interested in learning more, contact us now.