Don't Screw Up Pricing
It's so important to get your pricing right upfront or else it becomes very hard to make adjustments later on. If you're not a numbers person, it's really easy to shortchange the time and effort we need to put into our pricing strategy.
The 5 Common Mistakes:
1. Fear-Based Pricing
As farmers, it's hard to have the confidence to charge what we need in order to cover the extra cost, effort, and commitment it takes to raise the quality products that you do. One of the ways you can have the most confidence with pricing is by taking the time to fully understand what exactly are all of the costs you have in your business. Sometimes we lack the confidence to charge what we need, because we also don't have confidence in what our final cost is.
So, be sure that you understand your numbers, and be confident in charging a sustainable model to help your farm grow while also providing you the quality of life you deserve.
2. Match Based Pricing
Sometimes as farmers we're often guilty of being willing to go out of business before we're willing to take the time to sit down with a spreadsheet and pencil out what it takes to be profitable.
Match pricing is what I call the lazy way of pricing. It's just the idea of looking at other operations and deciding to match or price very similar to them. The big problem here is that often, your neighboring farm could be using the match pricing strategy as well, so this just turns into a really bad game of telephone where everyone is getting farther away from profitability.
3. Low-Ball Pricing
This is very similar to match pricing. It's the idea of looking at competitors or similar operations, and actually pricing LOWER as an attempt to differentiate.
The problem is that low-pricing is a very poor growth strategy. Especially in niche/high-end markets where pricing is actually a great positioning tool to help translate the value and quality of what you provide. Converting new customers comes from building a relationship with people and effectively communicating the value of what you provide. Having a lower price doesn't help build that relationship and actually communicates that what you provide is less quality from your competitors.
Low-ball pricing will only put you in a very vulnerable place and will significantly hinder your ability to grow.
4. Markup Pricing
Most of us when starting in business struggle to understand the difference between markup and margin. This is a problem because these are two very DIFFERENT things.
For example, if you have a goal to capture 30% of every dollar of revenue you generate, don't make the mistake of thinking that selling your products for a 30% markup from your costs will make that happen. You'll find that if you do the math, a 30% markup will not translate to a 30% profit.
So to figure to your margin, what you need to do is take your retail pricing (what you're selling at), minus your cost for that product, divided by retail price again, = your margin percentage.
5. Flat-Based Pricing
As a farmer, you likely sell through multiple channels. You might sell off the farm, delivery to pickup locations, farmers markets, or ship door-to-door.
Each of those channels have VERY different cost associated to them, so you need to make sure you figure out what those costs differences are, and build that into your pricing for each channel. Meaning if your cost is on average $1.00/# more for door-to-door delivery, you need to charge those customers at least $1.00/# more than your other channels.
This is a much better strategy vs charging a high-cost delivery fee. Delivery fees are not convenient for consumers and will be a major objection to doing business with you, vs someone else who provides 'free' or a discounted delivery fee.
If you keep these 5 pit-falls in mind the next time you sit down to evaluate your pricing, you're sure to avoid some major headaches and capture the profit you need!