Setting a price for your product/service can be very difficult. Too high and you run the risk of putting customers off, too low and you will make very little profit (if any). The price that you set should be influenced by many aspects of your business; it shouldn’t just be plucked out of thin air.
Consider the value of your product/service, if you have an exclusive item or sole share of your market, then you have the luxury of charging a higher price. If you have competitors, how does your price and product/service compare? If you are offering a budget version then the price should reflect this, similarly, if your product/service is of a higher standard then don’t sell yourself short. Understand your target audience, if your product/service falls into the “luxury” category, then you need to know if your customer can not only justify the spend but has the disposable income to make a purchase. Consider the perception of your brand, if your customers consider you a high-quality brand they will expect to pay higher prices, if you’re new to the market then it is unrealistic to expect people to pay “top dollar” for something they have no previous experience with.
There are numerous ways of calculating a sale price and the method you use will vary depending on the product/service that you are selling. The most common method is cost-based pricing. This is where the cost of the product/service is calculated, and a certain percentage is added on to account for the profit margin or mark-up. This method is suitable in situations where there is a lot of similar competition, it is simple to employ but doesn’t factor in a customer’s demand.
Another method is to price based on value; this is open to interpretation as the value will change. This method is usually used for medicines or computer software. A higher price is applied in times of great need. This method allows for higher profits but there is a risk that you may overestimate the worth of your product, and a customer will opt for a lower price product. If you can accurately predict your sales before investing in production, then opt for target return pricing. You can use the predictions to set a price, by dividing the profit you want to achieve by the number of sales that you expect. Alternatively, you can just match your competitor’s pricing; this is most commonly seen in a saturated market in places like supermarkets.
Unfortunately, there is no “one rule fits all” solutions and there are many considerations to take into account. Make sure that your price is in line with the quality of your product/service. Define your company values; the customer should understand that they are paying for quality, years of experience or reliability. Take the time to really understand your audience and how they behave. You can’t just decide on a price; there are many influencing factors to make sure that you’re priceless and not worthless.