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Setting price of WiFi projects: cost- and competition-based methods

by | Jul 22, 2015 | All articles, Industry news | 0 comments

Many IT professionals ask for our advice before starting a business in the Social WiFi market. They already have a large customer base, to which they sell a wide range of IT services: cloud computing, VOIP, web development, networking, online invoicing…their customers are companies, small and medium businesses, etc.

They would like to leverage this existing contacts database to cross-sell WLAN projects and WiFi-based marketing services.

But, the question is: “Which is the right price for Wi-Fi projects”?


In this post, we will explain some pricing methods (that can be used for any product) and we will provide an Excel Worksheet to price WiFi projects.

 

1st method (the easiest one)

COST-PLUS PRICING

This is a very common approach, but it’s not always efficient because it completely ignores the competition and ignores the possibility of any increment of costs. At the same time, this method is simple and assures to have costs reimbursed and to make a profit.

USE THIS METHOD IF:

  • You are not working in a very competitive market
  • You need to be sure of getting a margin over your service
  • You don’t include the replacement of the access points in your end user price

DON’T USE THIS METHOD IF:

  • You have many competitors
  • Your costs to provide the service are not fixed / they could increase

DOWNLOAD THE EXCEL CALCULATOR



HOW TO USE THE EXCEL CALCULATOR FOR COST-PLUS PRICING:

As the cost-plus pricing strategy implies adding a percentage markup to a product’s unit cost, fill the file with:

  • Your fixed costs (amount + quantity)
  • Your per-unit costs (amount + quantity)
  • Desired margin

You will get the per-unit and the total price for the end user.

For example, you could consider a setup fee as a paid once, fixed cost. Instead, software licenses, hardware costs (to purchase access point) and installation are per-unit measurable costs.

TIPS AND TRICKS

  • Don’t forget any fixed or per-unit cost.
  • Establish a reasonable forecast for costs that you don’t know yet.
  • Consider that some unexpected costs can occur.
  • Once you have calculated your price, test it with a few prospects. Try to understand if it’s reasonable for the customers, too high, or too low.

2nd method

COMPETITION-BASED PRICING

This is the most simple approach to price your services in high-competition environments. Rather than setting a price based on your costs, or the customer demand, you use the competitor prices as a benchmark to set yours. Unfortunately, you don’t know what strategies your competitors are using to select their price, so this method is not so effective.

The benefit of this price-setting method is that is relatively safe because you don’t risk losing your market share to the competition (in a preliminary phase).

The risks here are two: the first, is double-mirroring, if your competitor decides to set its price the same way; the second one, it’s to enter a “price war” versus multiple competitors. If your product hasn’t a differentiating value, you end up decreasing your pricing and losing your margin.

If you want to protect yourself from price wars, find a profitable niche or segment to serve, and find a way to bring added value to that particular niche: in this case, try with the value-based pricing method (described below).

USE THIS METHOD IF:

  • Your costs are lower than the competitors’ ones, and you can make a higher margin while setting a price near to theirs.
  • You are entering a very competitive market or territory.
  • Your product is similar to others already sold to customers.

DON’T USE THIS METHOD IF:

  • Your product has differentiating characteristics.
  • Your costs are higher than your competitors’ ones. You would be burned if they lower their prices.
  • Your product has a differentiating value (in this case, it’s better to try the value-based pricing method).
  • Don’t use this method to avoid conducting your own pricing research.

DOWNLOAD THE EXCEL CALCULATOR



HOW TO USE THE EXCEL CALCULATOR FOR COMPETITION-BASED PRICING:

If you chose this method, fill the file with this information:

  • Competitors’ prices
  • A small % that will determine your minimum and maximum end user price, in a range

You will get a range: adopt a lower price on a higher price, based on the maturity and completeness of the service that you are offering.

Consider that some prospects have a higher budget while others (for exmple small locations like restaurants, bars, cafés) are low spenders on IT services.

TIPS AND TRICKS

  • Don’t look only at prices. Evaluate the completeness and maturity of the services that your competitors are offering. Try to understand if they completely answer to the customers’ needs, or not. If you feel there is a valuable difference between your product and theirs, try with the value-based pricing approach.
  • Adopt a lower or higher price in the suggested range, based on the quality that you can provide.
  • Don’t stop testing your price. If you are winning all your opportunities, maybe your service is too cheap and you’re losing margins. If you don’t win any new customer, your price could be too high, and not aligned with the customer’s budget. Leverage your experience and learn from testing the price with your prospects.

 

NEXT BLOG POST:

HOW TO SET THE PRICE OF A WIFI PROJECT: VALUE-BASED PRICING AND ROOM-BASED PRICING (for hotels and B&Bs)