Whether you’re in the business of handmade crafts, food processing, or even when you’re just re-selling existing products, it’s essential to determine how much you’re going to sell them for. You have to find the optimal price where you can profit, make your product affordable for your intended target market, and also stay competitive especially if businesses are offering similar products.
Overpricing could lead your competition getting the upper hand or simply having customers not buy your product while underpricing could lessen your profit or even result in a loss when all costs are accounted for. So, here are strategies and considerations when determining the price of your product:
List all your Product Cost
To make sure that you don’t incur losses when pricing your products, you have to account for all costs that went into the product such as raw materials, packaging, labor costs (including benefits for your workers), overhead costs such as taxes, transportation/logistics, marketing cost, and other costs such as rent and utilities. Once all of those are accounted for, you have to determine the total cost of producing your products. If you sell the product at a price that only covers all the costs, then you’d be selling it at “break-even price” which means that you neither profit nor incur losses from the sale.
Additionally, if you’re only retailing or reselling a particular product, you have to account for cost related to acquiring the product including shipping costs and any other costs incurred when getting the product (such as taxes or cost of paperwork), and not just the price you paid for when you bought it from the manufacturer or primary seller.
Analyze And Be Updated With Your Market
You have to determine how much customers are willing to pay for your product, and how much your competitors charge for the same or similar products. You can either beat their price by charging lower (while also making sure that you’re able to profit), or you can offer better deals either through bundling the product with other times, or matching their price while offering “freebies” and other incentives that would make your product and pricing more attractive for customers. You need to be continually monitoring the prices and deals offered by your competitors
Pick a Pricing Strategy
You can price your product based on cost-plus pricing, which is calculating the total cost in the making (or acquiring) the product plus your desired mark-up percentage (example: $10 plus a 10% markup equals $11 selling price).
You can also follow a market pricing strategy which would be to either match your competitors’ pricing, price lower than them, or you price your product higher than them while branding your product as superior in quality or performance (however, if you’re selling the same product such as a specific phone model or brand of shampoo, you can offer bundle deals and freebies).
Dynamic pricing is also an option, which is essentially setting flexible prices depending on the demands of the market or certain times of the year (such as pricing technological products competitively during Black Friday, or costumes and candy during Halloween season).
Regardless of your pricing strategy, you have to make sure that you don’t sell lower than your break-even price to avoid losses.
Pricing When You’re a Manufacturer/Maker of a Limited Product
It’s important to note that if you’re a manufacturer or maker of a specific product that has fewer no competition, or a unique product (such as handicrafts or artwork) or limited, your pricing considerations may be a bit more different. Nevertheless, you’d still have to adhere to the rule of not selling below your break-even price to make sure that you don’t lose any money. If you’re the sole maker and seller of a unique product, your pricing could depend on your target market.
Although once you’ve set a right price for your unique product and it gains popularity, chances are, you’d have resellers interested to distribute your products. When that happens, you’d have to start strategizing your product’s suggested retail price (SRP) and minimum advertised price policy. But that’ll have to be a different discussion altogether.
Going back to the point, there are many strategies and considerations when determining your product’s price, and it’s essential to keep all of them in mind to avoid underpricing, overpricing or forgetting to account the costs that go into the product. So, find the right price for you and your customers, and you’ll be one step closer towards raking in profit.