Deciding the best price for your products is challenging. If you keep it too cheap, the profit line may suffer. Alternatively, incredibly high prices may wave off the customers. Setting a price that comforts customers is the best. It is understood as the selling price. The profit depends on the product’s selling price.
Whether you are unique to the enterprise or unsure where to start, the blog may help. The blog lists the best strategies to price your products without sacrificing profits.
What is a product’s selling price?
The selling price is the amount a consumer pays for a outcome or service. Price may vary according to the customers. It represents an amount that the customer pays and the seller accepts. One should decide it according to the competitor’s pricing strategy. Analyse the price so that it does not hamper sales or prove unaffordable to customers.
Thus, before deciding on the product’s selling price, know the aspects that determine it. For example, market research, competitive analysis, product demand, etc.
5 Strategies to set the apt price for your products
Pricing or re-pricing a product happens because of a business’s urge to maximise profits. When an individual or company prices a product, they price it flexibly. They consider the product’s selling price and profit margins, supplier’s costs, etc.
The outcome price might be various depending on the intermediary price. The best ways to finalise a product’s price is essential to maintain a business:
1) Analyse the market price
Analysing the market you operate within helps you understand the amount customers may pay. Do some competitor research and analyse how much they authorise for matching products. No, you do not need to match the customer’s price.
It’s because the overhead and other business costs and liabilities may differ. Analyse your competitor’s strengths and weaknesses before competing. Analyse the best product price compared to the competitor’s product. Base unique product and business aspects to decide the right amount.
2) Calculate total business expenses
Knowing your competitors may lay the foundation for analysing cost management. However, if you don’t know the costs to bring the products to market, your business may not grow. To analyse the figure, you must know the break-even point. It is the amount that you must charge to cover costs. It does not include any profit. To calculate the break-even point, analyse variable and fixed costs.
- Variable costs
These are the costs that are subject to modification oftentimes. For example, supplier costs, material costs, packaging, etc.
b) Fixed costs (overheads)
The money you spend on things like renting a place, insurance, business vehicles, and wages concludes with fixed costs. It does not change with time.
Thus, you can calculate the break-even point by:
Variable costs + fixed costs = Direct sales costs or business expenses
Direct sales costs ÷ total units = Break even cost/per unitFor example, if your variable costs are- £20000, and fixed costs are £50000, your direct sales cost is £70000. Alternatively, your break-even cost with total units being 145 is = £482.75 (70000/145)
Thus, you need to monetise your products before introducing them to the market accordingly. If you struggle to finance with available cash, get instant cash. You can get one for a stellar or good credit history. Facilities like a loan for bad credit for business purposes may help. You may qualify with a fair credit history, a well-described business plan and potential finances.
3) Identify the gross profit percentage
Calculate the profit percentage when you know the costs to charge, break-even costs and business expenses. Additionally, knowing the profit margin is important to price your products correctly. Your business mark-up percentage defines the profit sphere.
A mark-up is the difference between the cost price and the selling price. Cost price is something that a business wants to sell the product at. The selling price is the price that a customer buys at.
Mark-up percentage= 100× (sales price-cost price)/cost
For example, if furniture costs £1025. However, the customer bought the furniture for £3000. The profit margin becomes £1955. Hence, the profit mark-up percentage is = 191%. The mark-up percentage may go up to 200%. The higher the mark-up percentage, the higher the profit. Thus, by checking the profit margin, you can set the product price to make the highest profit.
4) Set a price and track outcomes
Set a price after completing the market research, competitive research, and finding the profit percentage. Launch the product by initially targeting a few customers. Track the sales after getting a response to your product. Tracking the sales helps you realise whether the customer responds positively or negatively to the price set.
If the latter happens, you must re-adjust your prices by calculating the same way. If you believe you cannot lower the price further, provide extras with the product. Customers love the freebies that come with any product. It may prove a successful strategy to increase the revenue and profit percentage. Yes, you may profit if your overall business expenses are lower than the total sales.
Alternatively, if you receive a positive response on your price, launch it on a bigger scale. It includes expanding the target audience set. It should be higher than the experimental phase. It will help you increase profit, revenue, and profit percentage. Alongside, constantly monitor the competitor’s pricing strategy. It will help finalise the product’s price aptly.
5) Test the price against different strategies
A successful business is all about covering costs alongside saving huge profits. However, there are other pricing strategies and techniques to adopt. Businesses utilise these pricing strategies commonly:
| Pricing strategy | Definition |
| Penetration pricing strategy | It involves setting a low price initially. You can increase the price after having a whopping customer base. |
| Premium pricing strategy | Charging extremely high to reveal the exclusiveness of the product. It is ideal for elite-based products. |
| Psychological pricing strategy | It is about making a product appear as cheaper than it is. For example, pricing a product at £499 when it costs £500. There is a minute difference but can help your profit margins. |
| Provide optional products or freebies | Offering “free” items with your products entice customers and increase revenue. |
Thus, you can utilise a pricing strategy based on your products, industry, and marketing strategy. It will help you decide the right price and profit from it.
Bottom line
Deciding a product’s price is one of the trickiest parts of hosting a business online. It requires careful consideration of the market, product demand, customer behaviour, audience needs, competitors, etc. Calculate the profit percentage against these factors.
Analyse the selling cost or the cost at which a customer wants to buy a product. You can calculate it according to the customer interest, profit margin and market. It would help you price your products profitably.