How To Correctly Price Your Product How To Correctly Price Your Product Pricing is one of the things that determine the success of your business. If you want to be clear about what you want to achieve, then it is high time you came up with a good pricing strategy. The main reason why you are doing business is to make money. Therefore, you cannot afford to choose a wrong pricing strategy. The worst mistake that you can make is to believe that the price you are going to choose will drive your sales. In fact, the ability of selling your products is what will drive your sales. Therefore, it is wise to hire the right people to help you when it comes to marketing, while simultaneously adopting the best pricing strategies. Underpricing Canon T3i is among the most underpriced products in the world. Under pricing greatly affected the profit made by the manufacturer. Although there are very many investors who believe that this is the best step when the economy is down, this is not always the case. When pricing your products you need to know that accuracy is very important in any economic cycle. Many investors tend to underprice their products in attempt to convince buyers that they are selling inexpensive products. Remember that every consumer wants to believe that he or she is getting the worth of his or her money hence you need to take care of all the costs when it comes to pricing products. Overpricing A good example of overpriced products is the 1963 Pontiac Catalina – $ 48,000. Many people thought that the high price of this vehicle was a result of clerical error but it was never the case. Although it is a rare muscle car, the price is too high. Overpricing of this product had detrimental effects on buyers especially those who look at the products from competitors. When you price your products beyond the desire of your consumers, you will reduce your sales. Consumers will think that you want to cover the expenses of your employees by overpricing. A FEW SIMPLE STEPS There are different methods you can use when it comes to pricing your products. To be very successful, you should combine different tools and understand that the main factor you need to take into account is your customer. The more you understand your customer needs, the better you will be positioned to offer them with the value of their money. Here are tips on how to price your products. Step 1 – Understand Your Customer Needs You need to do plenty of market research before deciding on the price of your products. This research can range from sending an email and conducting informal surveys. If you do not have money to spend on market research, simply look at various groups. You need to figure out the segment you are targeting as well as pricing before making your final decision. Step 2 – Understand Your Costs One of the fundamental tenets when it comes to product pricing is to understand your costs. You should cover all the expenses and then factor in the amount of profit you are likely to get at the end of the day. In addition, you should know how much you need to mark up your products and the price you should sell them in order to make more profits. The cost of the product is often higher than the literal cost of the item because includes the overhead costs of the same product. The overhead costs of your products can include fixed and variable costs such as shipping as well as stocking fees among others. It is good to include all these cost when coming up with prices for your products. Failing to take into account all these factors is likely to lead to underpricing of your products, which will affect your sales. Step 3 – Revenue Target How much revenue do you want? You need to know your revenue target when producing, marketing and selling different products. Targeting your revenue can be very complex especially when you are dealing in a wide range of products. Start by estimating the number of units you wish to sell before the end of the day. Divide your target revenue with the sum of units you are expecting to sell and you know the price that you should sell in order to attain your profit goals. In case you are dealing in different products, you should allocate the overall revenue you are targeting by the each of the products. Step 4 – Competition It is very helpful to a look at your competitors when pricing your products. After all, your customers will compare your price to that of your competitors before making their purchases. Find out whether the products are sold at prices comparable to yours. Only set higher prices if your products are highly priced when compared to those sold by similar vendors. It can be worthwhile to undertake a head to head comparison of different products with those of your competitors. While doing so, ensure that you use the net prices for accurate results. Step 5 – Direction of the Market Keeping track of the market direction will help you to determine the demand of your products. You should look at the long-term weather patterns and laws of the country, among other factors, before fixing the price of your products. In addition, you need to understand that your competitors are likely to respond to your prices by introducing new products to the market. Raising and Lowering of Product Prices • When to raise Prices: It is wise to test new prices, offers, and combinations of these to help sell more products at better prices. You can raise your prices and then offer special customer service or unique bonuses to boost your sales. Ensure that you measure the decrease or increase in the amount of products you are going to sell as well as the gross profit. The best way to find out whether you have priced your products correctly is by looking at the sales volume. • When to Lower Prices: You are likely to miss your target audience by overpricing your products. You can decide to include discounts or give your customers free products to increase the volume of your sales. This article was first published on StartUp Mindset. StartUp Mindset StartUp Mindset was developed to help entrepreneurs and anyone else who wants to succeed in business. You'll find information, tools, resources, motivation and a ton of other goodies to spark your Startup mindset.