Establishing price is a difficult balancing act. Charge too much, even for a premium offering, and you risk being run out of the market. Charge too little, and your offering might be perceived as less valuable to your potential customers than it is--not to mention that you might also be cannibalizing your profit potential.

In the end, price doesn't matter: right-pricing does.

Many businesses, regardless of size, price based on what it costs them to deliver their goods or services to customers, including research and development, design, prototyping, manufacturing, distribution, marketing and so forth. They then add on a desired profit and end up with a number. This is known as "cost-plus" pricing.

The problem with cost-plus pricing is that it's all about you and not at all about how the market values what you're bringing to it. Consumers don't care what it costs you to deliver what they need or want; they want what they want at the price they want to pay. It's irrelevant what it costs you to deliver a product at a profit if the price is more than the customer is willing to pay.

The price calculation is market-driven, not cost-driven. Rather than get to price from a cost perspective, you must first understand the acceptable price customers will pay--based on both real and perceived value--and then figure out how to deliver it at a cost that will yield the desired profit for you.

The challenge for most businesses is figuring out what price customers have in mind. You can't get directly to a magical number; rather, you need to understand the considerations customers make when they're deciding how much they're willing to pay. To do this, you must first appreciate the six key variables customers consider when determining their "right price." These factors hold true for candy bars, cars and consulting.

1. Need: Is what you're offering a "nice to have" or a "need to have?" Necessities and luxuries each have an emotional quotient, but it's easier to trigger a purchase--often at a higher price--if the customer believes she needs what you're selling.
    
2. Alternatives: What other products, solutions or services are available in the market to meet the customer's needs? There are almost always choices--even if they're not perceived as equal choices--including the decision not to purchase at all. You need to understand customers' views on what else exists in the market that meets their needs or a meaningful part of their needs, or that solves a particular problem. And remember that making no purchase is, in itself, a purchase decision.
    
3. Perception of value: What worth does the customer assign to what you're offering? People assign value in a number of ways, such as whether it simplifies a complex task, makes an unpleasant one more delightful, brings added convenience or mitigates perceived risk. Value isn't about money; it's about how your product or service improves your customer's life.
    
4. Suitability: Is your offering relevant to what the customer is looking for? Determine if what you plan to bring to market is on point, not beside the point.
    
5. Credibility: Are you viewed as a viable contender in the market in which you plan to sell? If not, you'll have a much bigger hurdle than a better-known company, even if you have a superior solution. Credibility is especially challenging for new market entrants or for those that are well-known in one space but not in a new vertical they might want to enter.
    
6. Performance: In short, how well does your offering do what it says it will do? Perceptions of quality are related directly to what the product or service is supposed to do, not just what it can do.

Right-pricing is a function of all of these factors. Each of these variables is inevitably influenced by the others. For instance, if you have a strong brand, it might diminish the perceived attractiveness of other alternatives available in the market--or the perception that other meaningful alternatives exist. If you have a very high-performing product, desire might overtake need as a motivator to purchase.

Pricing is a serious and difficult business, but not impossible to get right. Taking time to properly research and explore the nuances of these six variables is a must for any business that wants not just any price, but the right price.