Pricing Power: You Got This!

Courtesy of Wally S., Wally’s Market Garden, Pleasantdale SK

Although SPIN farmers produce much higher volumes than a typical gardener, it is much less compared to large multi-acre farms. Because they have a limited amount to sell, they need to get good prices to make it worth their time and effort. Low production and low prices are a recipe for failure.

Getting good pricing takes innovative thinking. Never take pricing as something that is fixed. Fixed pricing is more common to larger scales of production. As a farmer selling directly to the public, you have the ability to vary your pricing according to what’s available at market, the volume of your production, and your income needs.

With world food supplies uncertain and unpredictable, this point is especially glaring now. But SPIN farmers have always played off availability. If something is scarce at market adjust your prices to what you think the market will bear. Expect complaints. You’ll never please everybody and shouldn’t try to. As a small business owner, you have to find price points that not only please your customers, but that also pleases you.

Look at how other vendors are doing their pricing. Chances are they are using fixed pricing and selling at the low end. Set your prices higher, and never reduce your prices towards the end of the market to sell out. This will hurt you and the other vendors by training people to come late and haggle. Take surplus produce home or donate it to a food bank. As you gain experience, you will more likely sell out before market’s end, rather than have leftovers.

Always question your own pricing strategy. For a while I was using SPIN-Farming’s mix and match multiple unit pricing benchmark of $3/unit, or 2/$5. This worked, and I started getting more $10 sales. Believe it or not, many of my customers said this was too generous. So I changed my price point yet again. Instead of $3/unit, I increased it to $5/unit, keeping unit quantities more or less the same. To make the new price point easier to accept, I made it $5 /unit or 3/$10. That worked too. Instead of 5 units/$10, I sold 3/$10. So less produce for more money. And no complaints from customers. Instead of $5 purchases, I started getting many more $10 and $20 purchases. You don’t want to change too often, but don’t get stuck with the same price tier for too long either..

Bottom line is that you have to keep on tweaking your price points. It also underscores the advantage SPIN farmers have over other retailers. Most retail is cut off from any significant dialogue about pricing decisions with those directly affected - customers. So retailers are left with only numbers to try and interpret. SPIN farmers have a huge advantage selling face to face, especially after they build up a repeat customer base because it’s a group that feels some loyalty and wants to see you stay in business

A few years ago, I added a new question to my farm business accelerator review sessions: Do you have pricing power? Pricing strategies are always an important part of SPIN training. The old rule of thumb still applies: 80% of your business will come from 20% of your customers. If 20% of potential customers don’t pass you by complaining your prices are too high, you aren’t charging enough. The exact percentages aren’t important, but the points are:

– you need to capture whatever percent of the market that is willing to pay you what your produce is worth, not the largest percent of the market
– you need to charge pricing that makes being in business worth your while, and hold to it (of course you have to back it up with quality products)

Dynamic pricing is something Amazon and other big online merchants have capitalized on for quite a while now, and consumers accept it. So don’t hesitate to borrow from their playbook. Especially since more of SPIN farmers are throwing up their own online stores and doing delivery. Your online prices don’t necessarily have to match up with what you sell at market. Start high and gauge your sales. You can always change them.