When you have a business, it is important that you know how to price your products or services. Doing so involves specific factors such as finding your targeted customer, spying on your competition’s pricing points and having an understanding of the connection between the quality of your product and its prices. You have to be flexible also when it comes to setting your prices.
You have to be very clear on your goals when it comes to pricing strategy. Of course, your initial objective is to make money, right? Of course! However, there are other things that you need to do besides increasing your revenue. You want to cover your product costs so that you can make a profit. To do so, you have to be able to sell your product, which means that you may have to hire the right sales force who will adapt to the correct sales tactics.
Learn About Your Prospects
When you are pricing your product or service, you have to first think about your customer. You must know your customer and what value your product will create for them. For example, if you are selling hair products specifically for women over 60, you know that it has to be of high quality and therefore, a higher price point. Your research will be demographic –driven in this example. Do your research by conducting surveys, doing email and mail promotions. The research will help you to carve out a segment of the marketplace for yourself and hone in on these targeted prospects to know how to better serve them.
Identifying the Costs
Identify the cost of your products and how you will mark up those products to cover your overhead costs and make a profit. You have to factor in things like variable shipping costs, stocking fees, and other fixed costs such as rent and utilities. If you don’t do this, you may underprice or overprice your products.
Your Revenue Goals
Create a goal of the type of revenue or profit that you are seeking. With that revenue goal, factor in the costs for marketing, production and selling the products. Doing so will help you to come up with the right price. Do an estimate of how many product units you want to sell over a period of time. Divide the revenue goal by this amount and you will come up with a reasonable price.
Take a close look at your competitors. If you are not doing this, be sure that your customers are. They are comparing prices and you should too. If your competitors have a lower price and a lower quality product, you will be able to provide an answer to your customers as to why your product price is higher.
The Market Forecast
Take a close look at the market forecast. This means that you have to keep track of all the factors affecting product demand such as legal guidelines and weather patterns. Look at how your competitors are handling change. Market research can tell you whether a competitor will respond to a product announcement by engaging in a price war. This allows you to do any necessary price shifts.
Factors to Consider
Initially, you should base your product on a fixed markup from product acquisition cost. There are certain things to consider such as:
- The amount consumers are eager to pay
- Market perception of your product
- Competition pricing
- Whether it is a highly visible product or not
- Estimated product volume that you are able to sell
Another vital element to product pricing is to constantly monitor product prices and your monthly revenue. Listen to what your customers have to say by getting regular feedback. Keep a close eye on your competition. When you set a price, manage it by knowing when to increase and when to lower pricing. The way you set product pricing will determine success or failure of your business.