Pricing your product can be a tough call to make if you are new to the field. Even more so when you realize that it might have a permanent impact on your sales and branding. You want to make sure you cover your costs, but you also don’t want to price yourself out of the market. But how to achieve all of these? Here are three factors for you to consider while arriving at the price of your product.
Study your competition
Use your competitor’s pricing as a standard to help you set your own price. You don’t want to undercut them, but you also don’t want to charge too much more than they do.
The total value of your product must be roughly a sum of your competitor’s price and the value of the features and factors that differentiate your offer from theirs. Make sure you are super clear as to why your product costs more than that of your competition’s and that the differentiating factor is something that your audience actually needs in the product.
Cover your costs
While you do not want to price yourself too much higher than your competitors, thereby giving your potential customers a reason not to choose you, make sure you cover every dime you’ve spent in the production process. These include material costs, labor costs, and overhead costs.
Material costs are the costs of the physical materials used in producing the product such as raw materials or parts that go into the product. Labor costs include the wages and benefits of the workers who are involved in the production process. This includes both hourly employees and the management. Meanwhile, overhead costs account for all the indirect expenses associated with running your business such as rent, utilities, electricity charges, insurance, advertising, and more.
Make it affordable
After arriving at the rough price of your product, the very immediate step should be to review it and see whether it is affordable to your target audience. Your product might have a higher or lower price point depending on who your target market is. For example, a luxury item would have a higher price point than an everyday necessity.
There is no point in selling a product that is a necessity for your potential customers at rates that they deem extravagant. But you might be able to cover narrow margins with value drivers. Value drivers are factors that increase the worth of your product. Make sure you find the most attractive value drivers of your product for each segment within your target audience ad highlight them in your offers to each segment.
Use these tips as guidelines while setting the price for your product/service. What works best may vary depending on your industry and business model, so don’t be afraid to experiment until you find the right fit. There is no one-size-fits-all answer, but by considering these factors, you can make an informed decision that is fair for both you and your customers.