How To Price Your Products
One of the biggest challenges for any business is setting prices for its offers.
It’s also one of the most important obstacles to tackle, as it directly affects the bottom line.
Here are some things to consider to make sure you get your pricing right the first time.
Before you can even consider pricing, there are two factors you need to understand well: your audience and the market.
Know Your Customer
You should have a customer profile that tells you what problems your audience faces, how they shop and feel about money, and what they perceive as valuable.
The goal here is to position your product or service as offering unique value that helps them solve their problems.
Know Your Market
The other factor is the market. Get to know the competition and study products similar to yours that they’re selling.
This will give you an idea of what the market will pay, and you can position your product accordingly.
The most basic tactic for pricing your offering is called cost pricing.
You calculate the cost of producing and delivering your product, and then set your price so that you receive the margin you want.
You can use this Margin Calculator.
However, this isn’t the most strategic approach since it only considers the product and not the market.
It’s important to understand cost pricing so that you ensure profitability, but the right price is all about perceived value, not actual cost.
What is Cost Pricing?
In business, cost pricing is the process of setting prices based on the costs incurred to produce and deliver a good or service.
This approach is commonly used in manufacturing industries, where businesses must carefully consider the costs of raw materials, labor, overhead, and other expenses before setting a price for their products.
Cost pricing can be a complex task, as there are many different ways to calculate the cost of producing a good or service.
However, understanding the basics of cost pricing is essential for any business that wants to be successful in today’s competitive marketplace.
Two Types Of Cost Pricing
There are two main types of cost pricing: direct costing and indirect costing.
Direct costing includes only the costs that are directly related to producing a good or service. Indirect costing, on the other hand, includes all of the costs that are necessary to run the business, even if they are not directly related to production.
Indirect costs can be further divided into two categories: fixed costs and variable costs. Fixed costs are expenses that do not change based on how much is produced, such as rent or insurance.
Variable costs, on the other hand, do change based on production levels, such as the cost of raw materials.
Businesses must carefully consider all of these different types of costs when pricing their products.
They must also take into account the prices charged by competitors and the demand for their products in the marketplace.
By understanding all of these factors, businesses can create a pricing strategy that will maximize their profits and help them succeed in the long term.
Undercut the Competition
With knowledge of your competition and customers, you can set a price that the market will be willing to pay.
One strategy is to undercut the competition.
This will give you the low-price advantage and make it easier for you to draw away customers who are unsatisfied with your competitors’ products. You’ll be offering a cheaper alternative.
But even if you choose to be the low-priced alternative, you still need to drive home the unique value of your product.
If low price is your only selling point, it’s easy for a competitor who can take a loss to undercut you and steal away your customers.
It’s not enough to be the cheapest option.
Price Your Product Higher
Another strategy is to price your product or service just above the competition’s. In order to do this successfully, you’ll have to position your product as offering something more.
Your branding should tell people that this is a luxury product or a product with expanded features.
You can get away with charging more than the competition if you ramp up your marketing by doing things like:
1. Emphasizing the uniqueness of your product, such as special features or customization options the competition doesn’t have.
2. Laser-targeting your market by getting as specific as possible; for example, focusing on a specific segment and tailoring your marketing to that audience.
3. Add urgency to your marketing. Set a limit to how many units you’ll sell or cut-off date for taking orders. When there are limited supplies, people will be more likely to perceive your product as rare and valuable and therefore more willing to pay extra for it.
Start researching your pricing early, even in the beginning stages of product development.
Use the data you uncover about the market and your customers to set a price they’ll be willing to pay.
This decision usually takes longer than most businesses expect, and it’s not something to leave to the last minute.
ABOUT THE AUTHOR: TORIE MATHIS
Torie Mathis helps entrepreneurs grow their business with Smart Marketing. She is a best-selling author, Army veteran, international speaker + trainer, and the CEO + Creative Director at Lake Shark Media. She also teaches entrepreneurs how to get smart with digital marketing at toriemathis.com
I help solopreneurs & biz owners (like you) use digital marketing to get more clients + make more money without a big budget, a lot of time, or losing your sanity. And I make it easy!
You don’t need crazy tech skills, buckets of cash, or dedicated staff to market your business. You don’t even need a lot of time.
What you need is to be SMART.
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