Do you offer gifts or bonuses to customers and potential customers? While everyone likes getting things without paying for them, bonuses mean more when customers realize the value of the thing they got at no cost.

When you give customers an extra product or service, or a special gift such as a booklet or audio tape, make sure there is a price attached to it. For example, you might invoice for the entire cost of a service, then apply a credit to the invoice for the value of the giveaway. This is a vivid reminder to them that there is an associated cost, but they didn’t have to pay it!

Physical products may have a price tag or printed price on them. I print prices on booklets I use as promotional giveaways or bonus with purchase, even though these booklets are typically not sold separately. The point of the price is not to create an artificial value, but to demonstrate that the customer got something worthwhile without paying the price.

Help your customers see what the things you give them are worth! 

Setting prices is one of the hardest things for most small businesses and solo practitioners to do. How much is enough and how much is too much? 

Most small businesses err on the side of charging too little. A solo practitioner may base their hourly rates on what they earned as an employee. However, that does not take in to account the differences between employees and entrepreneurs.

If you base your hourly rates as an entrepreneur on what you earned as an employee, you will be out of business in short order. Employees get paid for every hour they work (and many that they do not work). You get paid for “billable hours” when you are actually doing work for customers. Employees do not have to pay the cost of their workspace, supplies and equipment and other overhead. You do.

Some small business owners believe that they must charge the lowest prices in order to attract customers. Although it is true that WalMart does a lot of business, so do Neiman Marcus, Nordstrom’s and other high-end retailers. You do not have to have the cheapest price, only the right price for your target market.

So, to get to the nitty-gritty: How do you know if you are charging the right price? Here are some questions to ask yourself:

How much do your competitors charge? You may be able to find the answer by doing a bit of research, online or off. Do you offer more value than the competition? Your prices should reflect that. Do not compete only on price.

What does your target market expect? If they have higher than average expectations about service and quality, they probably expect to pay a higher than average price. You will not lure them with cheap prices.

Are you attracting the right customers? Low prices can attract bargain hunters who will require more service than customers will to pay a higher price. You will spend more time for less money, and still end up with customers who are not happy.

Do you have enough business? If you are not meeting your revenue goals, it may be that your prices are too high– but it is more likely that they are too low. Higher prices create a perception of higher value.

Do you have too much business? If you have more customers than you can handle, your prices are definitely too low. Raising prices may allow you to make more money in less time with fewer customers.

This is a good time to examine your prices to make sure that what you charge compensates you for the value you provide to your customers. 

The prices you charge are part of your marketing identity. Do you have the lowest prices in town, or are your products seen as high-priced and high-value?

When you compete at the low end, you become a seller of commodities. Whether you offer a product or a service, if the buyer’s primary motivation is price you will always face the possibility of losing business to a competitor who chooses to undercut your price. As margins get slimmer, it becomes harder to sustain your business. A well-funded competitor may even sell below cost for a while to drive you out of business.

On the other hand, there are a number of ways to make sales that do not involve reducing prices. The perception of many customers is that expensive equals good, and more expensive equals better. Reach those customers by showing them why you are, in the words of the l’Oreal commercial, “expensive, but worth it.”

Value. Some unscrupulous merchants mark prices artificially high so that they can offer large discounts and present their pricing as a great value. More ethically, you can show that your product or service provides a better value than others. Your price does not have to be low to be a bargain. For example, although your widget costs a little more than others it has a longer life. Your services get better (and faster) results than those that appear to cost less.

Scarcity. When something is available in limited quantity, or for a limited time, it becomes more valuable. Each holiday season, there is a hot toy that is in limited supply. Could they make more? Sure. But then there wouldn’t be the same sense of drama and excitement as customers frantically buy every one in sight.

You can use scarcity by offering products that have a limited run, or by emphasizing that you have openings for only a small number of new clients. After all, your time is a scarce resource.

Retreat. Many salespersons use the strategy of selling a customer on an inexpensive item, then trying to shift them to a higher-priced choice. Not only is this dangerously close to bait-and-switch, it doesn’t work all that well. A better strategy is to show the customer a high-end product followed by a less expensive item. The price of the mid-range item will seem more reasonable after seeing the expensive choice. Another version of this technique is to show three items at various price points. Customers will typically choose the mid-priced item.

Status. Some customers may be willing to pay more for a label or other display of status. The Porsche Cayenne and the Volkswagen Toureg are almost identical; however, because one is a Porsche it commands a higher price. Status can come from the image of the brand, or even from a location, such as having a Beverly Hills address.

Pricing must be consistent with other aspects of your marketing identity. If your prices are upscale, your products and services, and everything that surrounds them, must be also.