How to Choose The Right Pricing Strategy For Your Business

How to choose the right pricing strategy in your business 1

Choosing the right pricing strategy can be the quick change you need for your business. There are a number of pricing strategies that business owners can use for setting prices for their products. It is important that business owners, you should choose the right pricing strategy for your business

The right pricing strategy includes various models that small businesses use when setting prices for their goods or services. Businesses need to adopt a pricing strategy because pricing is beyond calculating the costs and adding a markup, a whole lot of factors come into play.

Apart from costs and profit, there are a couple of other approaches that can help you decide what the best price is. You have to choose the right pricing strategy for your business.

Here is the right pricing strategy you need in order to set the right price for your products

How to choose the right pricing strategy in your business 2
Choose the right pricing strategy

Absorption Pricing

Absorption pricing is the best way to ensure that your customers pay a fair price for your product.

This is where all costs are factored in; the price of the product includes the variable costs plus a proportionate amount of the fixed costs and your profit margin. All these costs reflect in the final price. This method is simple and easy to use with no complex formulas or training.

Cost-plus Pricing

Cost-plus pricing is a business model that’s often used in the manufacturing industry. It’s based on the concept of cost plus markup, which describes how much you charge for your product over and above its actual manufacturing cost (the actual price).

In this model, your company sets a target profit margin—the amount of money you want to earn per unit sold—and then charges its customers whatever price it thinks will meet that target without going over budget.

The target profit margin is calculated by subtracting fixed costs from variable costs, which includes both direct labor costs and all indirect expenses related to production like materials and utilities.

Premium Pricing

This involves the practice of keeping the price of a product or service high when compared to your competitors. This strategy creates a perception that your product is a bit higher in quality than the rest.

If successful with this strategy, your business gets more profit; it also improves brand value and the perception of your company.

Competitive Pricing

With this strategy, your prices match or beat the prices of your competitors. Usually, this strategy is used in a competitive market, it means selling your products or services at a better price or the same price with better value or added perks. This strategy is easy to use once you research your competitors, you can adopt their pricing. The possibility of this strategy not being effective is low as your competitors have been in the business for a while. With this approach, you should adopt penetration pricing, promotional pricing, and captive pricing to give you an upper hand.


Freemium Pricing

Freemium pricing is a pricing strategy that provides a basic service for free but charges a premium for additional features or services. This model is used by many software companies, including Dropbox and Slack.

The freemium model can be used to drive the adoption of a new product or service. The key here is to make sure that your offering meets the needs of your target audience and doesn’t oversell them on what they need in order to buy into it—because if you do this too much (or too little), no one will use it!

Business owners should adopt the right pricing strategy that best works for them and ensure the pricing matches their target market. Understand that there is a risk that comes with either under or over-pricing your products.


Pricing is a big part of any business, and the right pricing strategy can make or break your company. It’s important to keep in mind that not all pricing strategies work for everyone; some businesses might benefit from a different pricing model than others. The key here is to find the right fit for your needs, and then experiment with different options until you find one that works!

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