Six Simple Steps when Pricing Your Productt
he price of your product or service is an essential piece of your business. If the price piece doesn’t click into your puzzle – and the wider marketplace – it can have a detrimental impact on the success of your business.
So, how do you determine the value of your product or service?
To follow, we’ve listed six simple steps to help you substantiate your price points, so can confidentially forge ahead without second-guessing your value.
- Discover your breakeven point. To determine the cost price of your product, before you can add a margin, break down all the inclusions that it takes to make your product a reality. These could be marketing, sales, staffing, overheads, and any other time that is spent on actualising your product. Once you’ve established a breakeven point, ensure that you create enough margin above that to inject funds back into the business.
- Undergo a competitor analysis. While doing the numbers to determine your breakeven point is important, there is a more crucial element at play. And that is this: what will people pay? To understand that, analyse the market. Find your three closest competitors, grab a pen and paper and jot down their price points, as well as the value they are bringing. During this process, you’ll unearth valuable insight into your and their competitive edge. Therefore, you’ll be far better placed to price (and potentially improve!) your product and offering.
- Determine the size of the problem. Another factor you’ll need to consider is the size of the problem that you are solving for your customers. If the problem and solution are both wildly important for your audience, and competition is scarce, your price will naturally be higher.
- Branding will set you apart. Branding is another key ingredient when determining your value. Ultimately, people want to feel good. So, the better you can make your customer feel, the more they will want to spend with you. How do you make people feel before, during and after a purchase?
- Gain feedback from your existing database. Create a focus group, ask your social media audience using a poll, or send out a survey to your email database. One of the best ways to learn the price that people will pay for your product is to simply ask them.
- Experiment. Finally, don’t be afraid to experiment with pricing. Strategising and re-evaluating your price points over the lifetime of your business is as important 20 years into the road as it is for startups. Tweak and test along your business journey.
There are a couple of ways to view your selling price; 1) Cost Price Up or 2) Sell Price Down.
All too often, businesses will look at ‘cost price up’ only. In other words, they buy for X, add a margin and sell for Y, which puts all the pressure on the sell side of the transaction.
However, in many instances, particularly in high-volume products, a sell-price-down approach is more effective. To do this, do your market research to discover the market position. What will the market pay for your product? Then create a margin by putting more pressure on the efficiencies in your business to lower your cost price from your supplier. Create the margin you need but not at the expense of losing customers.
Additionally, if you want to create a ‘super margin’ you can do both push up and squeeze down. This is a technique I have used for years across many different types of businesses to ensure I create highly profitable businesses.
If this article changed the way you think about pricing and you want to sharpen the future of your business, join us at Navig8Biz to learn more!