WHAT WE HAVE ON THIS PAGE
- 1 How to Price for Your Product: The Ultimate Guide
- 2 How much money is your target customer willing to spend on your product?
- 3 Here are 5 important things to consider when pricing your products
- 4 Conclusion
How to Price for Your Product: The Ultimate Guide
You could be priced out of the market if you overcharge your product and lose sales. If you underprice your product, then your target audience might think that it is of poor quality and people will not buy it, resulting in no sales. On the other hand, you might make a lot of sales, but only a small profit that won’t keep your company afloat!
Finding the right balance when pricing your products is a key factor, but that is frequently easier said than done. Your company’s success will be based on understanding how to price goods.
Your product’s price will rely on a number of factors; thus, there is no secret formula:
- Target market
- Your manufacturing expenses and business costs
- Your product
- Your revenue goals
- Price ranges of your rivals
Each company will have a unique set of answers to these key elements, but even then, determining how much to charge for your goods involves more than just the numbers. The easiest part of the entire process is actually the number crunching. It is very easy to work out the cost of your product because it is based on your intended profit margin. This is your selling price minus your expenses.
- What amount of profit would you like to make? Let’s take $5 per unit.
- How much are your total product costs and other expenses? Let’s say it costs $20 per unit.
- Break-even selling cost: $20 (your total outlay)
- $25 Selling Cost to Make $5 Profit per Unit.
It is essential to understand that the cost of your product will keep your company afloat; thus, a respectable profit is necessary. Scaling your company will be difficult and time-consuming if you are currently losing money or barely “making a profit.”
In theory, you should price your product to make the profit you hope to make. But how can you be sure that, for instance, if you price your product at $25, it would sell quickly at that price?
You do not do it before considering all the other aspects when determining how much to charge for your goods.
Before you decide on your product pricing strategy, there is one essential aspect you must consider as a priority using information readily available to you for free.
How much money is your target customer willing to spend on your product?
Market research is essential before you attempt to price your product. Although this process can take some time, it is important to learn what your target market is prepared to pay for your goods.
- First, as a starting point, consider your competitors’ prices to assess the market. To get an accurate comparison, you must select similar products.
- Next, ask people in an informal survey through social media or email what range of prices they would be ready to pay for the product.
- Even better, you can get a third-party organization to compile this kind of market data for you.
An idea of what most of your target audience will expect to pay for your product is the essential information you are looking for when determining how to price your products. After conducting your research, the price you arrive at may span a wide range, but this information gives you starting points to work within and may be used to support your product pricing plan.
In essence, any price plan you choose is worthwhile as long as it adheres to the standards you have already examined.
Keep in mind that your final cost may change. You do not have to launch a product with a fixed price. It is possible to adjust your product price due to changes in customer demand, fluctuating expenses or fees, and of course, the actions of your competitors.
In addition, you must be aware of your customers’ purchasing patterns and be ready to adjust prices when necessary if you want to stay ahead of your product pricing game.
How should you determine the price of your product once you have your pricing criteria from your preliminary market research?
Here are 5 important things to consider when pricing your products
#1. Keep An Eye On Your Prices
You should keep an eye on the industry and be aware of its trends, in addition to keeping track of the costs of each product. This is distinct from examining your company’s overall profitability. To put it another way, are all your goods lucrative on their own?
Keep in mind that all products, not just one or two best sellers, should contribute to your revenue goal, which is one of the factors you consider when determining your profit.
Furthermore, the simplest method to stay on top of pricing changes and determine how to price your products is to keep an eye on what your competitors are charging. You don’t have to keep an eye on them constantly, but once a week is more than enough for you to see any substantial price fluctuations and look into their causes.
It is essential to get regular feedback from customers regarding your pricing. Send them an email, or ask them to participate in a survey or poll in exchange for a discount or another perk. The opinions of your actual consumers are vital because they have already purchased your product. Additionally, you will demonstrate that you genuinely care about your company, your business reputation, and your customers.
#2. Understand Where The Market Is Going
Do you frequently search for industry news, monitor market trends, read white papers, and keep an eye out for the release of new or improved products? If not, how will you be able to identify trends that could affect your product’s demand or future sales and, ultimately, your pricing?
A change in the market is one of the key factors that will probably cause you to adjust your price. For instance, a bad weather season will affect sales and costs if you sell seasonal products, like summer clothing.
You may only have a certain amount of time to sell the current stock if you work in the beauty industry and a particular product or ingredient gets re-regulated.
If your product does not meet environmental standards, you might need to adjust the price in order to satisfy the ever-changing demands of the environmentally concerned consumer.
Factors can always change significantly from niche to niche. Therefore it’s essential to stay alert and adjust your prices in accordance with the current market trends.
#3. Lower Your Product Prices Only If Necessary
Lowering costs is typically not a good plan unless you are doing it for strategic reasons. For instance, having an extremely competitive price will help you swiftly capture market share.
Perhaps all of your rivals have reduced their rates, and you are simply doing the same. However, this does not necessarily mean that you ought to.
Maybe you have excess stock that you want to get rid of or a discontinued product. You may feel you need to cut your price for any of these valid justifications.
In addition, raising your prices and experimenting with various offers won’t always be successful. If you set your price too high, you may miss your target consumers; however, that does not imply you have to return to your original pricing immediately.
To entice consumers to try your product, you should keep the price high and offer something for free. Moreover, this raises awareness of your website and your goods. Everyone enjoys getting something for nothing, so by including a freebie, your consumer will feel that they are receiving more excellent value for their money and will be less reluctant to pay the higher price.
#4. Increase Your Product Prices Regularly
Let us assume that you have fixed your product pricing and are monitoring your competitors. Also, you are aware of new products that have entered the market and that your product is selling well at a steady pace.
Is it a good idea to increase your product price or risky?
The simple answer is that you should not be afraid to experiment with different prices, offers, or combinations that can help you sell more goods and, as a result, boost your profit.
Furthermore, your business may experience a time when you need to raise your product prices. If you do not, your business won’t be able to manage its future.
So, you can raise your product pricing each month, test out different offers, and keep an eye out for any lulls in the volume of orders being placed. While you will see a response quickly, it is vital to note that price hikes are generally more accepted during prosperous economic times. The best part is that your competitors will increase their prices in line with yours. This is a sign that your positive change has worked!
Continuous testing and observation are necessary to maintain your position as a market leader. This will ensure that you make the profits you deserve. Try something different if a particular offer or price doesn’t work; don’t get upset.
#5. Implement The Bundling Pricing Strategy
You probably don’t even realize that bundling occurs frequently and right in front of you.
It occurs when several products are bundled together and sold for one price. For example, five pairs of socks, a set of three t-shirts, or two pillows. Or similar products such as shampoo & conditioner, a brush set, as well as occasionally complimentary items like a purse and a handbag or portable gaming console.
Moreover, according to research from Harvard Business School, bundling similar products can boost sales, and you can use this tactic to raise your product price based on the “perceived value. Perceived value simply refers to the customer’s evaluation of a product/service compared to other products.
When consumers perceive value, they are less likely to be concerned about pricing. As a result, you may bundle several products together and charge a price that is in accordance with that frequently higher than your competitors-and still generate sales.
The additional benefit is that you are now providing something distinctive, which makes it more difficult for customers to compare costs side by side.
It is essential to understand your market before pricing your products. This will help you price your products so that your business can grow. Pricing your products carefully and constantly tweaking them will help you find the most profitable price. Continuous monitoring can help you achieve optimal returns.
Hopefully, the information mentioned above related to product pricing will help you determine your product price and also helps your business growth.