A Guide to Pricing Strategies is an online resource that will explain proven techniques used by successful agencies, studios and freelancers. This free guide contains helpful articles, business tips, and product news that will help you make your pricing decisions. It is available at harpoon.com/price-guide.
Cost-plus pricing is a pricing strategy where the selling price of a product is determined by adding a fixed percentage to its unit cost. This markup percentage is intended to generate a desired rate of return. Another pricing strategy is value-based pricing. Value-based pricing is the opposite of cost-plus pricing.
Cost-plus pricing can be a profitable strategy, but it is not suited to every market or product. In some cases, the costs associated with cost-plus pricing are too high, resulting in a loss of profit. In such a case, AVC can be a valid substitute. For these reasons, it is essential to consider the price elasticity of demand when choosing the markup.
Cost-plus pricing is an effective strategy for companies that manufacture and sell products in bulk, thereby establishing a predictable revenue stream. Grocery stores often use this strategy. For example, if you sell a product for $30, you earn a gross profit of $15 per unit. However, the price of the raw materials and labor can go up over time, reducing your profit margin.
Time-based pricing strategies have been in existence for many years, but their effectiveness can be enhanced when combined with enabling technology. This technology includes in-home displays and programmable thermostats. Increasingly, utilities across the US are using these devices to automate responses to time-based rates. The implementation of these technologies should be an opt-out affair for consumers.
One of the most common time-based pricing strategies involves charging a higher price at peak times and lower prices off-peak. This strategy is based on the theory that the price of a product is a good equalizer, and it helps to shift demand. Time-based pricing strategies are used in hotels, ride-hailing services, and other businesses that have seasonal demand and incentives.
Another common time-based pricing strategy is to offer free off-peak travel on public transport systems. This strategy is based on a time-based model that uses smart card data to calculate travel fare per individual. Time-based pricing strategies can help public transport operators spread out demand in the morning and afternoon. However, they can negatively impact the AM peak because many commuters shift their return leg.
When it comes to pricing your services, performance pricing can be a powerful tool. Unlike effort-based pricing, which is often based on time spent, performance pricing is based on a measurable improvement to the customer’s experience. It can include work-for-equity terms or value-based pricing, which captures the actual value that is delivered to the customer.