How To Price Your Products (In 3 Easy Steps)
A difficult question, which every business must answer.
Let’s have an example. Your company has created a new product or developed a service you wish to retail to your customers. Once your work is done, it is time to put it on the market and get the wheels to turn. But what should the product pricing be…?
To come up with competitive solution, you must first understand the few factors that influence the price of any product available on the market. Most of us recognise the law of supply and demand but it is but the tip of the iceberg for a knowledgeable pricing strategy. In this brief article, you will learn about a few other facets of pricing your product, and gain actionable insight into just how much your product or service should cost your customers.
1. Costs of Production
First, you have to recognise and evaluate the cost per product.
What are the cost of goods sold? The raw materials, production costs, shipping, storage?
What is the cost of time providing the service you’re pricing?
What are the costs to keep your business running, regardless of sales?
Understanding these fixed costs, both timely and monetary, will allow you to make an informed decision in regards to the second point of pricing for your products– the profit margins.
In other words, how much do you wish to earn from your sale?
Remember that if your products price point is fifty pounds, but your product has fixed costs of thirty pounds, you'll turn a profit of the twenty-pounds. Would you be willing to sell it for such profit?
Regardless of your wishes, you need to factor in the next two aspects of pricing your product – the sale prices your target customers are willing to pay and your competitors product price. It is necessary you understand your business audience thoroughly, as they are going to be the customers who purchase what your company deliver. Think of their financial abilities, marketing factors that make them choose one price over another, and susceptibility to value high-quality goods instead of cheaper, low-quality ones.
2. Cost plus Pricing
Secondly, it is essential you price your product competitively. This means, assuring that you recognise the pricing strategies of your competition and pricing products you sell accordingly. Is your product new to the market? If your market share is low, consider penetration pricing rather than a high price, that still gives makes a profit whilst your product becomes established.
Spend time analysing your market research by noticing the trends, finding out the most sought-out products, take into account the way in which your competitors price a product and make their sales.
This complex and often time-consuming task will inform your business sales strategy and ensure you find the right price point for your product within the market space.
3. Your Pricing Strategy
Finally, with all the above in mind, you have to create a pricing model. Make sure to address the customer needs, while allowing yourself the profit you’re seeking.
It is valuable to remember that the world is constantly changing and so are target customers. Your pricing strategies should be rigid enough to keep your company in profit long term, but also flexible when facing the fluid state of the market.
This is only the beginning, as you’re very likely to adjust and review your sales strategy throughout your venture.
The Bottom Line
The bottom line is this – gain as much insight as you can to make informed choices on your retail price. Recognise the target customers price range, needs and constantly re-evaluate your strategies.
The best way to be prepared for a challenge is to be ahead of the crowd.
So, when it comes to pricing your products, keep perfecting your pricing strategy and stay vigilant to the market demand to ensure you make a profit.