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When you first launch a small business, it can be difficult to decide how to price your products or services. Price too low, and you won't make the profit margins you need to build a sustainable company - but price too high, and you may find yourself scaring off potential customers. Here are some tips for finding the right price point for your customer base.

Look at what your competitors are charging
Before determining your own prices, take a comprehensive look at what other businesses in your industry are charging. If they are service providers, check their websites or call in to get a rate quote for particular services similar to the ones that you'll be offering. If they run retail stores or e-commerce sites, make a list of some of the products that they're selling, and find out how much they're marked up from wholesale prices. You may find a variance based on factors like location and quality, but most competitors will likely price their services or products within a fairly narrow range. You should aim to price what you're selling within that same range.

Analyze your own customer base
Think about your intended audience: Do they live within five square miles of your retail store? If you're selling locally, it's essential to understand the demographics and spending habits of the people in your neighborhood. If you know that your potential consumer base has a much smaller amount of discretionary income than shoppers in a nearby suburb or city, you'll likely need to keep prices lower to stay in line with your customers' needs. Before launching your business, consider sending out a short survey to locals to get their opinion on how much they would pay for your services or products, so that you'll have a realistic understanding of what the local market can command.

Consider your own expenses
To know how much you should be charging, it's important to determine how much revenue you need to bring in to build a sustainable business. Create a spreadsheet of all of your expenses, such as office rent, insurance, utilities, equipment, taxes, inventory and employees' salaries; determine how much you'd need to bring in each month to cover all of those expenses and still make a profit; and price accordingly. You may not make a large amount of profit while you're getting started, but it's important to come up with a rate structure that will allow you to make money in the long run.

Don't compete on price
Once you know what your competitors are charging, it may be tempting to undercut them in order to gain customers quickly. Don't do it: If you launch your business with low profit margins, you'll soon find that your current pricing methods are unsustainable. You'll likely be forced to raise your rates substantially, which would alienate your existing customers and do nothing to attract new ones. Although low price offers can help business in the short-term, a realistic pricing model that takes your expenses into account will help your business become sustainable in the long-term.

If you need to raise prices, do it gradually
If you've analyzed your sales data and found that you're pricing your products or services too low to bring in your target revenues, it may be time to raise your rates. In that case, don't implement any dramatic increases in price: Going directly from $50 to $100 will most likely scare off all of your customers. Instead, implement a gradual increase, raising the price by five to ten percent every few months over a period of two years. Although you won't see a dramatic increase in revenue immediately, you'll find that most customers won't even notice the price increase.

Note: This piece was originally published in HotFrog's Small Business Hub, and is available for paid syndication. Email me to ask about syndicating or commissioning articles on small business or other topics.