Are you looking for the best ways on how to price your products to maximize the profitability of your business? If yes, then you’re on the right article. Pricing your products well will help you make the most profit. However, pricing your products can be tricky, so you need to have the right knowledge and tools to help you succeed.
This guide in pricing your products provides tips and strategies on how to price your products for maximum profitability. It talks about the different factors to consider when pricing your products. Read on to learn more about how to price your products so you don't miss any money.
What Is Product Pricing?
Product pricing is the process of determining a product's value depending on external and internal factors. This sounds very simple, but it is much more complex.
Pricing is an essential factor that determines the overall success of your business. It affects your business's different aspects, including customer demand, profitability, and cash flow.
Pricing strategies vary according to target customers, industry, and cost of the good. For example, in eCommerce, the common pricing model is subscription-based. While in more competitive markets, the competitive pricing model is the best.
How to Price Your Products
The right product price will ensure your business stays competitive, covers costs, and gets profits. Follow these straightforward steps on how to price your products to find that sweet spot.
1. Know the Market
The first step in how to price your products is knowing the market. Research what customers need, what your competitor offers, and their pricing. This will help you understand the different prices range, the best products to offer, and where you'll fit in well.
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However, you shouldn't try to match or beat your competitors' pricing – it's not the best idea. Setting your product price towards the bottom of the range is best if you sell a mid-quality product to cost-conscious customers. But if your product is high-quality, you might miss out on profit with bad pricing.
Note that your product price also sends a message to your customers. A low price tells that your products are low-quality and vice versa. For example, higher prices will make customers feel they're buying something special if you sell handmade products.
2. Determine the Cost of creating and Package Your Product
To begin, the manufacturing cost of a product doesn't remain static. Instead, it changes depending on how you sell products. You must understand the overhead cost, labor cost, and raw material needed for a particular product.
You should also include the packaging cost in your pricing strategy. Adding the packaging cost to the cost of goods sold will help you get a reasonable price for your product. Plus, the packaging cost also varies depending on your product's size and whether or not you'll ship them.
3. Add Your Profit Margin
Your profit margin is the profit you want to make from each product sold. For example, if you want to make $50 in profit from each product sold, you need to set the product price at $150.
There are ways to determine your profit margin. But you should start by researching and evaluating your business before selecting the profit margin. The profit margin you select should depend on what's happening in your market, your costs, and your growth goals.
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4. Consider Your Fixed Cost
This is the fourth and crucial factor in how to price your products. Your fixed costs are business costs that stay the same regardless of the number of products you sell. For example, if you pay $1,000 a month in rent, that is a fixed cost that doesn’t increase or decrease.
It’s essential to consider the fixed costs when setting the price of your products. That’s because you’ll want to make enough money to cover the costs.
If you set the price of your products too low, it’ll be hard to cover your fixed costs and thus struggle to stay afloat. On the contrary, if you price your product too high, it'll be difficult to sell them. You should be keen on both ends of pricing.
Some common examples of fixed costs include:
- Utilities: electricity, water, etc.
- Rent/ mortgage: the total amount you pay for your space which might be warehouse, office, etc.
- Insurance: business liability and other types of insurance
- Depreciation: the value of the declining asset.
5. Factor in Variable Costs
This cost usually changes according to the products you sell. You need to understand various things, such as raw materials needed to produce a particular product, overhead, and labor costs.
Here is a simple way on how to price your products according to variable costs.
- Production time: $5
- Cost of goods sold: $6
- Shipping cost: $3
- Packaging cost: $2
- Promotions: $1
- Total cost: $17
6. Plan for Promotions
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Unless you've decided never to discount your items, you should ensure your profit margin remains healthy. This includes promotional periods.
For example, if you regularly have a 50% off sale, you will need to set the price of your products at 50% more than the normal price. But if you only have sales occasionally, it’ll be easier to factor it into the pricing of your products.
In addition, it’s important to keep your promotions consistent so your customers become accustomed to the sale prices and know when it's on. This will encourage customers to buy your products when they’re on sale. It'll be a great way to increase sales and maximize profitability in the long run.
7. Set the Price Using a Pricing Calculator
Pricing your products for maximum profitability starts with you calculating your expenses. The pricing calculator can help you simplify your pricing strategy.
These pricing calculators are widely available online. But you need to know a calculator’s pricing strategy before choosing it. The good part is that pricing calculators are quite easy to use. You key in the total cost of an item and then add a percentage profit.
How Does Poor Pricing Affect The Success of a Product and Business?
You can wrongly price by either charging so low or high. If the product price is too high, customers might feel you're exploiting them and refuse to buy. Therefore, your business will suffer lower profit margins.
On the other hand, a low price will make the customer question the value of your products. Here is how poor pricing can impact the overall success of your business and product.
1. Customer Dissatisfaction
If your product price is too high and fails to live up to the hype, customers will surely be dissatisfied. This can lead to negative reviews that'll make it even harder to increase sales in the future.
2. Low-Profit Margins
Pricing your product too low will make it difficult to cover the production cost and more. In the long run, you'll experience poor profit margins. However, the cost-based pricing strategy can help you avoid this issue. This effective pricing strategy allows you to add your desired profit margin to your cost and then set a final price.
3. Low Sales
Overpriced products sell poorly, leading to low sales. Even if you want to establish your brand as premium, it is advisable first to gain a following. You can get this following by temporarily lowering sales while improving the quality of your product. In the long run, it'll help you increase your footprint.
4. Customer Might Perceive You as a Shitty Brand
You should avoid regular promotions involving offering your product at deep discounts, such as at half price. This makes the customers rate you as a bargain brand. Therefore, customers will rarely pay the full product price. It's best to price your products reasonably and not so cheaply.
How to Set Up a Simple Store and Start Selling with Strikingly
Image taken from Strikingly Product
Now that you know how to price your products, it's time to start selling. Selling on Strikingly is as easy as ever; you only need to access the Simple Store from your site editor, add a product and connect a payment gateway. Here are simple steps to set up an online shop in minutes and start selling.
1. Add a Product
To sell, you must offer a product or service. The first step towards selling online is adding a product to your Simple Store. While in the store section, click "Add New Product.”
If you're on a free plan, you can only list one product; limited plan users can list five products; pro plan users can list up to 300 products, while VIP plan users can add unlimited products per website.
You must fill in the product name and description when adding a product. Keep the product description simple and short. You then need to upload the product images and ensure they are high-quality.
2. Set your Price
You can set your price in whatever currency you like from the payment panel. If you’re selling in various variations, say different sizes or colors, you can add the variations by clicking on "Add Options." If you want to collect your customers' shipping information, you can add that option too.
3. Set Up Payment Options
The one thing that makes Strikingly stand out is its ability to offer various payment options. You can find these options, including PayPal, Square, Stripe, etc., on the "Payment" panel.
For PayPal, you'll need a business PayPal account to activate it. In case you don't have a Stripe account, you can quickly sign up for it and add the account email.
After connecting your preferred payment gateway or gateways, your store goes live. You can change the store layouts and settings later if you feel like it. The process of setting up a simple store and selling your product is this simple. However, in case of any issues, you can chat with Strikingly.
You need to know and understand how to price your products to be successful in the business world. Pricing your products is an essential part of running a successful business. There are several factors to consider when pricing your product, and this article has listed them.
Overall, note that pricing your products too low means you will make less profit; pricing your products too high means you will struggle to sell them. These are two extremes that you should avoid. Therefore, it is important to find the sweet spot between selling your products at a great price and quickly selling them.