By Ed McLaughlin with Wyn Lydecker

Before you start your business, ask yourself: What will you charge for your product? The revenue model you choose, your product’s positioning in the marketplace, and your profit target will help you determine your price. Each type of revenue model will most likely have market benchmarks you can research to help you price competitively.

From my experience in sales, I had a solid understanding of traditional pricing models in my business sector, real estate services. I knew I could cover my costs and beat the competition with aggressive per-unit pricing. If you know your industry, you may be able to do the same. But first consider the following questions: 

• Will your price be aligned with traditional benchmarks?
• Will your price be competitive?
• Will you be selling a premium product and be able to charge more than most competitors, or will you compete on price?
• Should you use a simple markup to cover your unit costs?
• If you are a content provider, what are the prevailing rates for the type of advertising you are selling?
• If you are a provider of data, what do marketers typically pay for access to similar information?
• Will your price cover your cost and leave room for a reasonable profit?

Once you can understand and articulate your basic revenue model and your pricing, you can estimate how many customers you expect to have, how many sales you’ll likely make to each one, and how often – daily, weekly, monthly, annually. Taken together, this information will let you project your total revenue.

 I explore pricing in greater depth in my upcoming book, “The Purpose Is Profit: Secrets of a Successful Entrepreneur from Startup to Exit.”

Copyright © 2014 by Ed McLaughlin   All rights reserved.

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