Even though the price of your product determines your company’s appeal and profit, it isn’t something you can set arbitrarily. Producing, importing or even just purchasing it from another retailer costs you resources, which sets a bar beneath which you simply cannot go in order to stay profitable. On the other hand, if you are setting the price too high, your potential customers will start avoiding you like the plague. In order to deal with this tricky situation in the best way possible, here are four tips for setting the price for your product.
1. Check your competitors
If you are bringing something new to the market, you have the privilege of setting the price for it. Still, you cannot do it randomly, seeing as how your customers may deem the product too expensive, even if they have nothing to compare it to. This is why you need to try and estimate how much your clients will be ready to pay. In a more likely scenario, where there is an already established market of your product, you can simply look at what your competitors (or future competitors) are charging.
2. Choose a pricing strategy
Another thing you need to remember is the fact that the price of a product isn’t written in stone. No matter where you put the initial bar, chances are you will have to raise or lower it in the nearest future, which is why you need a pricing strategy. For instance, you can start with a low price to attract customers and then gradually increase it, or, alternatively, set a high price and lower it gradually in order to reach out to new customers. Both of these strategies have their own set of advantages and drawbacks; their suitability will mostly depend on the specifics of the product you are selling.
3. Your initial cost
Earlier on, we mentioned that there is a price beneath which you simply cannot go, but what exactly determines this figure? Well, it mostly depends on whether you are producing the goods or purchasing them from someone else. In case you are the manufacturer, the resources spent plus the wages of your production team are basically the overhead you are looking for.
However, if you are buying the goods from someone else and reselling them, you need to approach this question from a different perspective. Here, you have to take into account the difference between a local supplier and an overseas one, as the latter includes freighting as a major factor. Needless to say, in 2017 you can look up different freight online options in order to see what you are facing.
4. Cost-plus pricing
Finally, one of the major mistakes that most first-time retailers make is assuming that they will sell all of their products. Therefore, they calculate their profit as if their customers have preordered their goods. In order to avoid this mistake, you need to calculate your break-even point. What this means, is that you should determine a number of items that you need to sell in order to cover your investment. Every single item you sell past that point; you can count it as pure profit.
While for the most part, we talked about ways of lowering your profit in order to stay competitive, this isn’t necessarily the best course of action in all cases. Sometimes, the average market price may be much higher than necessary for you to stay profitable. However, this could result in earning less in the long-run, in addition to the hostility that you might encounter because of this move. Unfortunately, this is not something that can be easily quantified; there might be a reason why all the other companies are charging that much, even if you don’t know it.