Finding the right price to charge your customers can be a decision process filled with doubt – even worse, it can be a process filled with too much confidence. It’s easy to put the wrong number on the product because there are many factors that you should keep under consideration. Price your product too low, and you miss out on a potentially much larger profit whilst possibly risking giving the impression your product is inferior. Price it too high, and you might drive customers away – into the hands of your competitors.
Correct pricing is both an art and a science. Luckily, there are plenty of professionals in the field who are willing to give their expert advice. Here’s how to set up the right pricing for your goods or services.
The break-even point
This is a basic principle of doing business – you need to be able to calculate your break-even point. In other words, you need to add all your costs and expenses (including tax and transportation or shipping), and divide this by the number of units you produce. This will give you a price which you can never go below, unless you plan to incur losses. The break-even point will set the absolute lower limit.
Cost-based pricing is giving your product a price based on the break-even point plus a mark-up in percentage terms. For example, if your break-even point is £10, you may want to add 50% and sell it at £15.00. This is the simplest way of pricing, but not the smartest one. It should only be used as a guide – other considerations have to be made.
Considering VAT and taxation
This should be considered in your pricing strategy. If you’re not sure how exactly taxes and VAT should be calculated and incorporated, consult a professional for advice – there are many offers, such as those from GSM & Co., who can help you with this.
Do your research
Check your competitors and see how they price similar items. You will have to compete, so do a comparative analysis and see how your product is better or less valuable.
Customer research is incredibly important in this – understand what your customer values, and see how much they are willing to pay.
Once you have a good idea of what could be the ideal price, it’s time to bring your product or service to the market. Accept the fact that you might have to make some changes. When in doubt, it’s better to price your product too high rather than too low – you can always change the price later on, but the consumer will readily accept a reduction in price rather than an increase in price.