Pricing Strategy for South African SMEs

Before setting prices, understand your costs:

• Direct costs: Materials, labour directly tied to delivery
• Indirect costs: Rent, utilities, insurance, admin
• Variable costs: Change with volume
• Fixed costs: Stay same regardless of volume
• Hidden costs: Time, mistakes, support, warranties

Calculate your total cost to deliver a product or service. This is your floor—you cannot sustainably price below this.

Beyond costs, what value do you create for customers?

• Problems solved: What pain do you eliminate?
• Outcomes delivered: What results do customers get?
• Time saved: How much time does this free up?
• Money made/saved: What's the financial benefit?
• Risk reduced: What risks do you mitigate?
• Emotional value: Status, peace of mind, enjoyment

• What do competitors charge?
• What's the range in your market?
• What differentiates higher vs lower priced options?
• What are customers used to paying?
• What's the price sensitivity in your market?

Calculate costs + add a margin (e.g., cost + 30%).

• Simple to calculate and explain
• Ensures you cover costs
• Common in retail and manufacturing
• Risk: Ignores customer value and competition
• Risk: May leave money on the table

Price based on what competitors charge.

• Match: Same price as competitors
• Undercut: Below competitors
• Premium: Above competitors (with justification)
• Easy to implement if competitors are visible
• Risk: Race to bottom if just competing on price

Price based on the value delivered to customers.

• Focus on outcomes, not inputs
• Highest profit potential
• Requires understanding customer value deeply
• Justifies premium pricing
• Example: Consulting fees based on value of advice

Start low to gain market share, raise prices later.

• Good for entering competitive markets
• Builds customer base quickly
• Risk: Customers expect low prices forever
• Risk: Cash flow pressure in early period
• Must have plan to raise prices

Price above market to signal quality and exclusivity.

• Attracts quality-focused customers
• Higher margins
• Must deliver premium experience
• Requires strong brand and differentiation
• Lower volume, higher value per sale

• Good-Better-Best options
• Appeals to different customer segments
• Middle option usually most popular
• Anchoring: High tier makes middle seem reasonable
• Example: Basic R500 / Standard R800 / Premium R1,200

• Combine products/services at package price
• Increases average order value
• Makes price comparison harder
• Adds perceived value
• Example: Website + hosting + maintenance package

• Show original price alongside sale price
• Present expensive option first
• Makes subsequent prices seem more reasonable
• Use ethically—never inflate artificially

• Charm pricing: R99 instead of R100
• Round numbers for premium products
• Even numbers appear more planned/calculated
• Odd numbers suggest a deal or discount

• Set minimum order values
• Minimum project fees for services
• Protects against unprofitable small orders
• Encourages customers to order more

• Customers rarely push back on price
• You're always busy but not profitable
• You're significantly below competitors
• Customers comment 'you should charge more'
• You can't afford to hire or invest
• Every customer says yes immediately

• Announce in advance to existing customers
• Explain the value you provide
• Consider grandfathering existing customers temporarily
• Apply immediately to new customers
• Raise by meaningful amount (5-10%+ usually)
• Small increases often go unnoticed

Example message: "As of [date], our prices will be increasing to [new price]. This allows us to continue investing in [quality, team, technology] to serve you better. As a valued customer, your current pricing is guaranteed until [date]. We appreciate your business and look forward to continuing to serve you."

• 'It's too expensive'
• 'Competitor X is cheaper'
• 'I can't afford it'
• 'Can you do better on price?'

• Explore the objection: 'Too expensive compared to what?'
• Reframe to value: 'What's the cost of not solving this problem?'
• Qualify budget: Is this a fit issue or a timing issue?
• Offer alternatives: Different scope, payment terms
• Stand firm: 'This is our price for this service'
• Walk away: Some customers aren't your customers

• Volume commitments: Larger orders justify lower unit prices
• Long-term contracts: Security warrants discount
• Strategic accounts: Reference customers, key logos
• Seasonal/inventory clearance: Better than waste
• Cash payment: Saves you transaction costs

• Always get something in return (commitment, referral, case study)
• Maintain a floor below which you won't go
• Document why discount was given
• Don't discount for no reason—it trains customers
• Be consistent—customers talk to each other

• Add value instead of reducing price
• Extended payment terms
• Additional services or products included
• Faster delivery or priority service
• Extended warranty or support

• Calculate landed cost (product + shipping + duties)
• Factor in packaging, handling, storage
• Consider payment processing fees
• Account for returns and damage
• Typical retail markup: 50-100%

• Hourly rate: Salary desired ÷ billable hours (typically 1,000-1,500/year)
• Project pricing: Estimate hours × rate + buffer + profit
• Value pricing: Based on outcome value to client
• Retainer: Monthly fee for ongoing services
• Don't forget non-billable time in your calculations

• Monthly vs annual (annual often 15-20% discount)
• Consider customer lifetime value
• Churn affects pricing viability
• Tiers for different needs/budgets
• Usage-based components where appropriate