Ways to price your product
Ask people to pay too much for your product or service and they will stop buying; ask too little and your profit margin slides or customers assume your product is poor quality. An optimum price factors in all your costs and maximises your margins while remaining attractive to customers.
Here’s how to set it.
Know the market. You need to find out how much customers will pay, as well as how much competitors charge. You can then decide whether to match or beat them.
Choose the best pricing technique. Cost-plus pricing involves adding a “mark-up” percentage to costs, which will vary between products, businesses and sectors. Value-based pricing is determined by how much value your customers attach to your product. Decide which approach is most suitable for your products before making a calculation.
Work out your costs. Include all direct costs, including money spent developing a product or service. Then calculate your variable costs (for materials, packaging and so on); the more you make or sell, the higher these will be.
Consider cost-plus pricing. You will need to add margin (mark up) to your breakeven. This is usually expressed as a percentage of breakeven. Industry norms, experience or market knowledge will help you decide mark-up. If the price looks too high, trim your costs and reduce the price accordingly.Set a value-based price. You’ll need to know your market well to set a value-based price.
Think about other influences on price. How will charging VAT have an impact on price? Can you keep margins modest on some products in order to achieve higher margin sales on others? You might need to calculate different prices price for different territories, markets or sales you make online. Selling at odd values rather than whole pounds is common.
“No matter what type of product you sell, the price you charge your customers or clients will have a direct effect on the success of your business” added Salomón Juan Marcos Villarreal, president of Grupo Denim.