Trying to determine the prices of your products or services for your business can be a challenge. You want to make sure your overhead costs are covered and that you are making a profit. However, determining the lowest price at which you are willing to sell and the highest price at which the customer is willing to buy can be difficult.
Choosing a pricing strategy for your product or service can be intimidating because your business success is riding on it. To help you decide on the best pricing strategy for your business, here is a list of three factors to consider when determining the price of your product or service.
When it comes to pricing strategy, looking at what your competition is doing and how they are pricing their products or services is very important. Your customers are more than likely going to be looking at the competition so, you need to know how they compare to your prices. Conducting market research and performing your own internet searches will provide useful insight into your competition.
As you look at the competition, you’ll probably focus on their prices at first. But, besides the prices, be sure to focus on the value of the product or service they are offering. See if you can find a competitive advantage that you have over the competition. Maybe you offer a higher quality product or provide a better quality of customer service. If your product clearly provides more value than the competition, a higher price point will indicate to your audience that it’s a superior product. If the competition’s product or services seems more valuable, try pricing your product just below theirs as a less expensive, but high-quality option.
To accurately price your products, you’ll need to learn as much as you can about your target customers. Market research will outline the demographics of your target audience and reveal their purchasing behavior. If you have extra money, you can hire a firm to perform the market research for you or you can do some online research yourself.
You can research the market yourself with basic database research, survey results and internet research which will help expose common traits among your customer base. Research can help you determine if your target market prefers to bargain hunt or likes to splurge on certain products. Once you determine your target market and their spending habits, you can price your product or service accordingly.
One mistake many new businesses make is in inaccurately calculating prices on the front end. To ensure that the prices of your product generate enough revenue for you to make a profit, consider all costs involved, including overhead costs. Add up the costs of raw materials, assembly, labor, rent, shipping, liability insurance, marketing and any other costs you incur. List the dollar amount for each of your costs on a spreadsheet. The total should give you a good idea of the gross revenues you must generate to ensure you that all of your costs are covered.
Remember, make sure that you are covering your costs and making enough profit to support growing your business. How you set the prices of the products or services could determine the success or failure of your business.
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