You have a great product. It's useful, it's stylish, and most people seem to want it. But even then, you still aren't guaranteed success. Why? The problem could be your pricing. Price setting is half art, half science. You need to make a profit to stay in business, and to do that, your products must be priced correctly. Luckily, there are a few tried-and-true solutions to the problem. Here's what you need to consider when pricing your products or services.
1. Don't Underprice
Cheapest is not always best. Pricing a product below market value has a negative effect, since people will assume that it is not the best quality. Price the majority of your products too low, and they'll soon perceive your entire business as having little value.
At the very least, you must always charge enough to turn a profit. If you don't, your bottom line will suffer, and your business will soon be a distant memory.
2. Don't Overprice
Overpricing your product could prove an even worse mistake. Customers aren't daft, and most will be well acquainted with the prices your competitors are charging. If you charge much more than the other guy, you'd better be sure your product is better and that your customers are aware of it.
3. Know Your Customer Base
If you've never done market research, now's the time to start. You can do this on a small scale by sending out an email survey to your existing customers. Include a small promotion, such as a money-off coupon, to sweeten the deal. Once you know who your customers are, you can target them specifically later on with offers they are more likely to respond to.
4. Know How to Use Desired Profit to Determine Selling Price
In order to cover your costs while turning a profit, you'll need to determine how much your products cost to manufacture. That includes more than just the price of their components. You must also factor in overheads such as rent, shipping fees and, most importantly, your time.
Many women believe that their time is the least meaningful factor, but that is simply not the case. Time is money. Don’t forget to factor in your own!
Now, time for some maths. The equation here is X + Y = Z, where:
X equals your total costs in making the product.
Y equals the profit you want to make.
Z equals your selling price.
5. Learn to Use Revenue Targets to Determine Selling Price
Determine the size of the profit you hope to net over the course of the coming year. This is your revenue target. If you sell more than one product, you'll need to allocate the overall revenue target by each of them. Then estimate the number of units you expect to sell during that year.
The equation in this instance works out to X / Y = Z, where:
X equals your allocated revenue target for a particular product.
Y equals the number of units of that product you expect to sell.
Z equals your selling price.
6. Be Careful When Raising or Lowering Prices
If you must raise your prices, it is usually best to do it in small increments over a period of time. Try to soften the blow by offering your regular customers a freebie or money-off voucher.
Lowering your prices, on the other hand, could give consumers an unfavourable impression of your product. It might be better to offer a special discount, instead.
7. Additional Considerations
Know your competition. Learning what your competitors are charging for a similar product can help you in arriving at an approximate estimate. It's also important to realise that price is only one factor in driving sales. Creating market interest is equally critical.
Always remember to be vigilant concerning any outside influences that might affect your potential market. If, for example, weather pundits predict five years of global freezing, you may not be selling those string bikinis any time soon.
Product pricing can be tricky, but it's not impossible. Keep these common sense rules in mind, and don't forget that people will pay a bit more for a quality product. Never, ever sell yourself short.
Contributed by Andy, co-founder of CreditCardCompare.com.au, which is one of Australia's leading credit card comparison websites.