One of the most important decisions you will make in business is pricing decision. If you price your products correctly, it will go a long way to determining the success of your business. However, the reverse is the case if you do it wrongly. If you ask people to pay too much for your product or service, they will stop buying. If you ask too little, your profit margin slides or customers assume your product is poor quality
There are different strategies you can implore in pricing your products. However, there is no one sure, formula-based approach that suits all types of products, businesses, or markets.
Pricing your product will involve considering certain key factors. Let us take a look at some of those factors.
- Know the audience: You need to find out can pay, by researching how much competitors charge. You can then decide whether to match or beat them by charging lower, after making other considerations.
- Work out your costs: In fact, this the major factor to consider. Add all direct costs, including money spent developing a product or service. Then calculate your variable costs (for supplies and materials, packaging and so on) – the more you make or sell, the higher these will be. Work out what percentage of your fixed costs (overheads such as rent, rates and wages) the product needs to cover. Add all of these costs together and divide by volume to produce a unit break-even figure.
- Decide your Revenue Target : You should have a revenue target for how much of a profit you want your business to make. Factor in your costs for producing, marketing, and selling your product in your revenue target, and you can come up with a price per product that you want to charge.
- Know Your Competition: It is important to look at the competition — after all, your customer do. If you offer comparable products with your competitors, you can use their pricing as an initial gauge. If you want to charge more, simply add more value to your product or service, so the buyers understand why you charge more than others. Remember to always consider your costs.
- Consider other factors.
You have to consider other factors like
- How VAT will have an impact on price
- Can you keep margins low on some products in order to achieve higher margin sales on others?
- You might also need to calculate different prices for different territories and markets, if you sell across borders via online channels
After making all these considerations, you will have a clear idea of what price you want to be paid for your products or services. Remember that these considerations are not cast in stone due to the dynamic nature of businesses, and due to regulations in some territories.
My name is Chigozie Japhet. I am a content writer, and a brand strategist. I like writing, reading, researching and watching football, especially my team, Man United. i believe in working hard, and also in relaxation as all work without play, makes Chigozie a dull boy.
