You got into business to fill a need. You saw a gap in the market and felt so strongly about it that you decided it was you who was destined to fill that gap.
It often happens that the reason you saw the gap in the first place is because you personally experienced the need. You either had a bad experience with a product or a service and you thought to yourself, ‘if only someone made it better’, or you found yourself in the unique position to connect the dots between two different products or services.
You recognised that if you put them together you would fulfil a different need.
Related: 4 Types Of Business Models
Where rubber meets the road
No matter why you started your business, filling a need costs money. To recover the input costs requires sales. You need to sell your product in order to break even. But of course you don’t start a business to break even. You also want to make a profit, grow your business and make it sustainable.
This is where price comes in. Determining what to charge for your product is crucial. Charge incorrectly and you can price your product out of the market. Charge too little and you won’t break even and will soon be out of business.
Pricing is where the rubber meets the road. It’s the science of figuring out what someone is willing to part with for your product. It’s the intrinsic value of the product. In other words it’s what your product is going to do for me. But people don’t just buy drills for their intrinsic value. In fact, people don’t buy drills, they buy the holes the drill makes. They buy the overall experience of the product.
You need to price that in too. In fact, the non-intrinsic parts of your product can create more value. A well packaged product that comes with great aftermarket service and support can be as important to the purchasing decision as the product itself.
A great product is greater than the sum of its parts. This is what I call value.
Identify your target market
Pricing correctly in a service business is equally important. What I discovered when I opened my first restaurant opposite a university was that students were not my core target audience. I had made the faulty assumption that they would be. After all, I was located opposite a university.
In reality, my core customers turned out to be lecturers, and business and office workers. I had priced our food lower than it should have been with the university market in mind, and then attracted customers who could have and would have paid more. I left money on the table.
Related: Target Market Worksheet
- Understand your product costs.
- There will be expenses beyond the cost of making the product.
- Great products fill more than a need
- Price for the sum of its parts.
- Pricing correctly allows you to maximise profit.
- Never leave money on the table.
Miles’ Kubheka’s new book Vuyo’s – From A Big Big Dreamer To Living The Dream is available now at all leading retailers and on loot.co.za for R99.