Pricing your Products or Services
Having the correct price for your product or service can mean staying in business and thriving as an organization or going out of business. Your pricing, linked closely to your personal perception of your pricing can have a big affect on what you’re trying to accomplish. Properly pricing your product or service can help increase your customer base, your market share, and best of all your total profit. So how do you price your product correctly? Here are a few things to consider.
Calculate your COGS
Start out with your COGS, or Cost of Goods Sold. Find this number by looking at everything that goes into the creation of your product or service. This may include material costs, labor costs, marketing fees, etc. Determine how much is costs to produce your product or service. Once you’ve gotten that nailed down you can feel comfortable knowing you aren’t selling your product or service for less than it costs you to deliver. If you are selling for less than your total Cost of Goods Sold you aren’t going to be in business for very long. You have to make a profit in order to keep your business afloat.
Take a look at your industry. What are your competitors charging? Are you going to be producing a similar product? Something different or better? Look at your competitors for a baseline. Determine your product or services perceived value. Perceived value is the idea of what a customer or client feels it will deliver or bring to their lives. What problem are you solving for your customer and what value do they place on the solution you are offering? If your product is new to the market you may need to create value. Let’s say you’ve decided to publish an e-book. You’d like your e-book to provide tips for parents teaching their young children to read. First, you’d want to find out what other e-books are available, what content they provide and their costs. Next, you’d want to determine if you were offering a very different or very similar product. If you are providing a very similar product but want to sell it for a much higher price consider what additional value you are adding to the customer. Do they perhaps get the e-book and access to an online parent forum? That might create additional value for the customer and allow them to justify the price difference. Perhaps the content you provide is just better and that quality comes with a higher price. Finally, you want to accentuate the need the customer has for the e-book. What would it be like for this parent to have a child who was reading from a young age? When you’re able to find the intersection between value, need and investment you have a winning price point.
When you’ve set your price point take a look at the products or services the customer could use to make a comparison. One of my favorite stories about price comparison was a study published in the Journal of Marketing Research. Williams-Sonoma had a $275 bread maker listed in their print catalog, and almost no one was buying it. When they introduced a similar bread maker for $429 and positioned it next to the $275 bread maker, sales of the $275 bread maker nearly doubled. Their goal wasn’t to sell the more expensive product, but of the original product. The bread maker was a new product on the market. Customers didn’t feel comfortable buying it because they weren’t sure if it was expensive or cheap. When the customer was able to compare the products side by side they felt at ease with the purchase of the $275 machine. As you’re constructing your product or service offerings consider having multiple price options or similar but different products and price points will give your customer a feeling of security and enable them to make a buying decision.
Finally, you must believe in your price point. Once you’ve determined what your price should be based on your COGS, your competitors, and your value have confidence in your price point. Stand behind your price with total confidence, because if you don’t believe you can sell your product or service for the amount you’re charging no one will!
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