Here’s How Startups Should Price Their Products

One of the biggest challenges for most of the startups around the world is of pricing their products. You have created a product and you know it serves a huge value in the market, but how much should you price it? It is an important question because sometimes, products can fail only because they are not priced right. Price your product too high and your customer might never buy it. Price it too low and you might never make any profits on your sales. You have to avoid both these situations and doing so requires some efforts from you. If you have a startup and you are looking to find a way to price your product, let these tips help you.

Tips to Price a Product for Startups

Survey the Market

You cannot price your product unless you survey that market you are going to target. You have to ask your potential customers the right questions. An important question to ask them is, “How much would you be willing to pay for so and so product?” You should inquire further to know at which price point your customers will not be willing to buy the product at all. You can learn a lot from the CEO of Waterton Hotels, who says, “We are in hospitality industry where we have to change the prices of our services quite frequently. We are always surveying the market to ensure we price our services aptly according to the changing seasons.”

Know Your Competitors’ Prices

If you have competitors in the market who are selling similar products to yours, you have a perfect way to know what to price your product. Collect the data of your competitors and the prices of their products. However, you can’t just collect the pricing data from your competitors, find an average value, and price your product that. You have to factor in a lot of other things. Some of your competitors might be new and not very well known in the market. On the other hand, some might be old and established businesses. There will be a lot of difference in the prices of their products and services.

You first have to find a product that closely resembles yours. Secondly, you have to look at a business which is most similar to your business.

Know the Right Formula to Price Your Product

It is understood that in order to price your product, your first have to know your expenses. You must cover all your expenses and then make some profit on the sale of every unit of your product. This will require some detailed calculation from you of all your expenses. Once you have found a price point based on your expenses, this is the formula you will be using to set the right price.

Covering Just the Expenses

At first, you should focus on covering just your expenses. You might make some profit on your sales but do not focus on making a lot of profit. The main goal should be cover all the expenses you have incurred to produce your product. This is how every product is priced when the business is at its startup stage. Pricing too high will be fatal for you because your customers will have many other alternatives. They might find cheaper version of the same product or will choose to buy more expensive from a well-recognized and trusted brand.

Making Profit

You will reach the point of making profits on your sales once the data shows that you are making enough sales to cover your expenses. If your data shows a positive response from the market, you are in a position to take the risk of increasing the price. At this point, you will cover your expenses and make enough profit on your sales to help your business grow. You can’t keep on operating with shrunken profits because then there will be no chance of growing and expanding your business further from its existing position.

Charging for Value

This is the last stage of pricing your product. Once you have established yourself as a trustable business and made a lot of loyal customers, you can now go ahead and start charging for the value you offer. As a business, your value is something that your customers cannot obtain from other companies in the market. There is a lot to learn from Waterton Accommodations about this particular point. The price of the company might not be the lowest when you compare it to its competitors, but it offers features that most other competitors are not able to.

Think beyond the Product

Believe it or not, you do not always charge your customers for your product as you can also see from the pricing formula above. There are lots of businesses that are continuously trying to improve their products to gain more customers. Their efforts end up in losses because the market is not demanding any changes in the product. They have to think beyond the product and look into other possibilities to charge more for their products. A great example of such creative thinking is to come up with an innovative packaging. Many companies are charging their customers for the fancy packaging.

Their product might be identical to another brand’s product but their packaging gives their customers a premium feel. There are many other methods to convince your customers to pay more for your product by implementing out of the box ideas.

Final Thoughts

You have to know that pricing the product appropriately is a crucial part of running a business. The risk is bigger when you are a startup because you don’t have a lot of data to rely on and the goodwill to convince your customers with ease. Your unique product might end up as a failure if you price it too high or too low. So, before you jump into the market, you have to know the particulars of the market through surveys and studies. The biggest mistake you can make as a startup is thinking that your product will be successful when you price it low.