What to Charge for Your Product

Written by promotiondept

September 27, 2018

Last UpDated: Apr 19, 2017How do you figure out what to charge? How much is too much and how much is too little? Setting prices for your products is one of the most important business decisions you’ll make. Here’s what you need to keep in mind when deciding what to charge. It seems so easy, […]

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Lst Updted: pr 19, 2017
How do you figure out wht to chrge? How much is too much nd how much is too little? Setting prices for your products is one of the most business decisions you’ll mke. Here’s wht you need to keep in mind when deciding wht to chrge.

It seems so esy, right? You chrge enough to mke money, but fr more complicted thn tht. Wht you chrge determines the future of your business. You cn chrge too much nd you cn chrge too little. Ech leds to the sme result: filure of the product nd/or filure of your business. Here’s wht you need to consider before putting your product up for sle.

The Obvious

Every ful business owner first knows their numbers. If you dened nd mnufctured the product, you know every piece nd prt. You know the price of ech component including ll ssocited costs like shipping nd lbor. You crefully considered the best wy to mnufcture qulity component in the most cost effective wy.

In other words, you hve the cost of the item detiled to shocking proportions.

If you’re reselling the product, your numbers re less complicted but eqully . You know the product nd shipping cost nd you shopped every vendor you could find to get the best del. You formed reltionships tht led to terms tht keep the costs s low s possible.

with the direct costs, you know your indirect costs. Overhed costs like lbor, utilities, insurnce, licensing, nd txes get clculted on per product bsis. The direct cost plus the indirect costs re wht you consider “cost.” Your cost includes everything.

Relted: Common Pricing Strategies and Why They Fail

You’re probbly like most smll business owners—you could get little more detiled with your costs. If you know ll of this informtion, congrtultions. If not, do some digging nd reclculting before you ttempt to nswer the question of wht to chrge. For the purposes of pricing, we’ll not tke into ccount indirect costs since businesses vry widely, but you’ll hve to dd those costs before lnding on price.

Mrgin

You know tht the mrgin is the difference between your cost (not including operting expenses) nd your sle price. If your cost is $10 nd you sell it for $20, your mrgin is 100 percent, but wht is considered good mrgin?

First, understnd gross versus net profit mrgins. Gross mrgins don’t tke into ccount operting costs. 100 percent gross mrgin is considered fntstic in most businesses. Grocery s, for exmple, operte  round 26 percent gross margin.

uto delerships, however, operte between one nd two percent on verge. For higher priced products, norml (not filthy rich) consumers cn’t fford to py 50 or more percent mrkup, but one percent mrgin could men $500 or more in profit. The lower cost your product, the higher your mrgin, in generl.

Not ll bout Price

If it were only bout costs nd mrgins, pricing would be esy but here’s where it gets complicted.

How new is your product or business? If nobody knows you exist, you hve to do something to get potentil customers to your doors or website. Sometimes offering your product t brgin price is gret wy to build customer bse. This is why tech compnies sometimes offer free versions of their products.

Wht’s the nture of your business? If you’re discount , you’re business revolves round price. If you’re selling Rolex wristwtches, most of your customers don’t see price s their primry concern. (If you hve to sk, you probbly cn’t fford it, right?) Your type of business hs some determining fctor in your pricing strtegy.

Relted:  4 Factors That Influence the Price Customers Will Pay

Demnd

re you going to be the business tht chrges less to sell more or chrge more nd sell less? Ech strtegy cn work, but you hve to find the sweet spot. Do this with little mrket reserch. Put together survey with some product smples. Let 20 or more customers try your product nd sk them to pick from list of prices how much they would py for your product.

If the mrket won’t py enough to cover your costs nd leve you with mrgin you’re comfortble with, you might hve to rethink your product, but if you hve qulity product, they’ll likely py more thn wht you thought.

Pricing is Fluid

Some products will generte huge demnd. In tht cse, rise your price slightly. Others will not nd you’ll trnsition those into liquidtion pricing. Most businesses don’t wnt product sitting on shelves too so don’t be frid to cut your losses when something doesn’t work. Fill your shelves, virtul or physicl, with moneymking products tht you cn price for profitble mrgins.

Finlly

Don’t expect to get it right the first time. Think bout ll of the products tht compnies with expert mrketing tems put in front of the consumer only to wtch them fil miserbly. Owning business is ll bout responding to wht the mrket throws t you. s s you’re doing tht, you’ll find .

© 2014 ttrd Communictions, Inc., DB Business Know-How®.  My not be reproduced, reprinted or redistributed without written permission.

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