There is no specific formula for pricing your products, but remember that it depends on several factors:
- Your product.
- Your target market.
- Your income goals.
- Your competitors' prices.
- Your production costs and business expenses.
Each business will have its own set of answers to these key factors, but even so, the price of your products isn't just about numbers. In fact, crunching the numbers will probably be the easiest part of the whole process. It's actually very easy to calculate the price of your product in theory, because it's a very simple equation based on your desired profit margin.
- How much profit do you want to make? Let's say $ 5 per unit sold.
- What are your total product costs and expenses? Let's say $ 20 per unit.
- Break-even sale price: $20 (your total expenses).
- Cost of selling for a profit of $5 per unit: $25.
So, in theory, you will evaluate your product based on the desired profit. But how do you know that you can price your product at, say, $25, and it will sell at that price without difficulty?
You don’t. Not without considering all the other factors involved when you decide how to price your products.
How Much is Your Customer Willing to Spend?
You should never try to evaluate your products without doing some market research first. Yes, it can take a long time, but it's a step worth taking, because understanding what price your target market is willing to pay for your product is key.
Use your competitors' prices as a starting point for evaluating the market. You should select similar products to get an accurate comparison. Then conduct an informal survey or survey via email or social media, asking people in what price range they are willing to pay for the product (hypothetically). You can even have a third-party agency collect such market data for you.
Information you're looking for when deciding how to rate your products is an idea of what the majority of your target audience expects to pay for your product. During your research, it is likely that the price you will eventually get may be in a wide range, but this gives you the starting parameters to work with, and you can use this information to help you with your product pricing strategy.
In fact, whatever pricing strategy you use, as long as it fits into your research parameters, it is worth testing.
So, once you have decided on the price parameters based on the initial market research, how do you choose the price for your product?
5 Things to Consider
1. Know Where the Market is Heading
You probably often look at industry news, read official documents, follow market trends and the introduction of new or improved products. If you don't, how will you identify products that may affect the demand or future sales of your product – and ultimately, your prices?
The change in the market is one of the main factors that will probably push you to change the price. For example, if your product is seasonal, one lousy weather season will affect sales – and prices.
Factors will always vary significantly from niche to niche, so it is very important to be alert and make changes to your prices based on informed decisions based on current market trends.
2. Price Tracking
You should monitor the prices of your products on a case-by-case basis. In other words, track whether each of your products is profitable. This is different from considering your profitability as a business in general. Remember that your revenue goal – which is part of how you define your earnings – should be achieved by all products, not just one or two bestsellers.
Monitoring your competitors' prices is the easiest way to keep abreast of price fluctuations, which in turn will help you determine how to price your products.
You should also receive regular price reviews from your customers. Send an email, invite them to a survey via email in exchange for a voucher or other incentive. The opinions of your real customers matter because they have already invested in your product.
3. Change your prices regularly
Is it worth raising the price – or is it a risky move?
Never be afraid to test new prices, offers, or combinations that will potentially help you sell more products and ultimately increase your profits.
There will come a time in your business when you will still have to raise prices. If you don't, you won't be running your business with any real thought for the future.
So, raise the price and test new offers every month. You'll see a reaction pretty quickly anyway, but it's worth noting that you'll find that price increases are accepted more readily in good economic times.What's really interesting is that if you see your competitors increase their prices in line with yours, you know you've made a positive change.
4. Reduce Prices Only When Necessary
Lowering prices is generally not a good strategy-unless it is done for strategic reasons. For example, you can try to quickly capture market share, and to do this, you will need a super competitive price.
It's possible that all of your competitors have cut prices, and you're just following their lead – although that doesn't necessarily mean you should. You may have an excess stock to get rid of, or a discontinued line. These are all legitimate reasons why you might feel you should lower your price. If the price is too high, you may miss out on your target audience, but that doesn't necessarily mean you should automatically reduce the price to the original one. Instead, keep your price high, but add something for free to encourage consumers to try your product.
Everyone likes to get something for nothing, so by adding a freebie, your customer feels like they're getting more value for a higher price.
5. Use the Bundling Pricing Strategy
The "bundling" happens all the time, right under your nose, but most likely you don't even realize it.
This is where you see multiple products sold as a package, at the same price. For example, a pack of three T-shirts, or five pairs of socks, two pillows. Or related products, such as a set of brushes and combs, shampoo and conditioner, and sometimes additional products, such as a purse and purse or a portable computer console with a game.
A study conducted by the Harvard Business School found that bundles of related products can help products sell better – and you can use this strategy to raise the price based on "perceived value." Perceived value is simply a consumer's assessment of a product or service compared to similar products.
When customers feel like it's getting value, it's less likely to worry about price, so you can combine multiple products together and set your price accordingly – often higher than your competitors – and still make sales.
Another advantage is that you offer something unique, which makes it difficult for buyers to compare prices.