Pricing strategies for small businesses

PUBLISHED ON 2019-02-06

Small businesses have a great potential but often they struggle to compete due to wrong pricing strategies. Here you are with suggestions on how to set your prices.

Small businesses have a great potential and they manage to keep great economy in different countries, but their average annual revenues are very low (i.e. in the US about 44,000 $/year and a little lower value for European area). There are a lot of possible reasons like low ability to market themselves and compete with bigger players but one of the most common problem comes from bad pricing strategies.

Choosing a good pricing strategy becomes one of the most critical aspect when managing a business. In a few words a pricing strategy is the set of factors and rules that the business owner use to determine the price applied to its products or services.

The most important factor to keep in mind when setting a price are:

  1. production costs (or purchase costs if you resell products)
  2. marketing costs
  3. business structure costs (employees costs, online shop costs, retail costs and utilities costs)

These are sufficient factor to determine the costs of your products but not the price at which you should sell it.

It must be said that you should try to allocate fixed costs (mainly points 2 and 3) on any single product and by that you should price your products at a higher value than their global costs but ths is not always true: infact you may prefer to sell a key product at its cost or even at loss just to acquire new customers and drive competitors' customers to your shop.

To do this you must pay attention to your competitors' pricing. This kind of activity can be easily leveraged using a price monitoring and tracking tool like PricePaladin.

Anyhow in today's world you have a lot of possible pricing strategies you can choose and mix to have a great business revenue.

Market Penetration

Marketing penetration is usually a costly strategy: it requires competing with competitors not on different quality products like in the case of "pricing like a unique product" but competing on a price basis and this usually can lead to profit loss for some times. This strategy is applied when the business owner wants to conquer an important market share reaching competitor's customers and acquiring them.

Keep in mind that profit loss on a product may be compensated by margin profit on other products the customer may buy from you after he/she have reached your store after noticing the competitive price on some products.

In this case competitor's pricing monitoring becomes essential and can be achieved using PricePaladin

Pricing like a unique product

If you don't mind competitors or if you have a unique kind of product, you may decide to set a high price for yur product since you don't fear competitors. Customers buying from you must know they are buying a unique product, something that can justify high prices.

Usually small business can afford such a strategy since they often creates hand-made or at least semi-unique products. In that case customers value most the importance of the products instead of making comparison with competitors.

Keep in mind that such high prices requires attention and care for any aspect of the product like packaging and the message the products convey to the buyer.

Shrinking non-direct costs to sell cheaper products

Another strategy similar to market penetration require to reduce non direct costs like marketing to keep product prices cheaper. This strategy may be hard to accomplish for a small business since marketing visibility is extremely important and small businesses aren't known to the masses.

Competitor analysis pricing

Sometimes it's hard to evaluate your product costs due to fixed businesses costs and you can simply have a price too higher than the competitors: there is just a way to do it, monitor your competitor prices and base your prices on theirs.

PricePaladin is a great tools to monitor competitors at a very competitive cost: we monitor our competitors too!

Set prices based on psichology

This is a very common technique and today it's hard not to find it: setting the price for a product at $59 sells a lot more than setting it at $60. Even when you work with cents (like $59.90) can help you increase sales instead of setting the price to the full $60 price.

Another kind of psichology strategy is placing the product at an already discounted value. If you sell the product immediately as a $90 discounted value from an original $100 price, you will get more buyers instead of simply start selling the product at $90.

Bundle offers

Bundle offers are an extremely powerful way to boost your sales. Consider selling more than one product in a single sale, allowing for a discount on the entire purchase. Obviously, keep in mind your costs to be able to determine the right discount to apply.


When your customer buys a product it may need to buy something else. Here you are with your ability to provide accessory items.
If you sell jewels, you may sell items for gold or silver care. If you sell smartphones you may provide break insurance. If you sell coffee blends you may suggest your customer to buy a coffee machine or a beautiful coffee cup. Upselling in this case may impact on price strategy like in bundle strategy.

Set higher initial prices

This is a very risky strategy: if you set higher prices you can maximize profits on early adopters but you may risk to be associated with an idea of expensive products. This can be considered a plus too since it conveys to you a different kind of customers, more interested to luxury or exclusive products but it may also hurt your reputation if you are not selling such a kind of products or simply if you are not targeting luxury customers.

Anyhow you can decide to create expectation in your products (through the help of marketing strategies) trying to grow demand for them and then satisfy the demand simply dropping prices.