One of the most important considerations in any retail business is price point. Set it too high and you drive customers away, while if you set it too low, you’ll either make no money or risk your consumers assuming your products are low quality. Fortunately, there’s an optimal balance in between the two that can make everyone happy, and we’ve compiled a few pointers to help you find yours.
Monitor Competitor Pricing – See what other companies in your sector are charging to get a basic idea of what prices the market will bear. If your prices turn out wildly different from the industry after following our pointers, you’ll know that something needs to be recalculated.
Calculate Your Costs – This is the most important thing to consider, as mistakes here can cause you to wind up leaving money on the table. Make sure you include all the costs associated with the development of your product, as well as the procedural costs such as materials and shipping. Finally, determine what portion of your overhead costs should be included – consider that these should be spread out across your entire product line.
Choose a Pricing Model – There are two basic ways to determine a price: value pricing and mark-up pricing. Mark-up pricing is most common, but in sectors where products and services have a high perceived value but low cost, value pricing can be far more profitable.
Mark-up is the part of pricing everybody enjoys – this is where you start to make a profit. Having covered all your costs in the previous step, determine what percentage of the base cost you’ll add to the price. This may require some research into competitor pricing, which will help you determine what the market will bear – remember that pricing too high drives your customers away.
Perceived value pricing is often found in luxury industries and information products, where the value of the item is less connected to the base cost in the consumers mind, whether it’s a designer handbag or a language learning package.
Remember the Final Price – Depending on where your business is located, sales tax can have a large impact on the final price from a customer’s point of view. If you’re selling online or overseas, this may not be an issue, but there may be other customs duties or other unforeseen costs that can affect the customer.
Stay Flexible – Once you’ve set your prices, remember that markets are fluid and prices change regularly. Investing in a price monitoring solution can keep you from losing out on the opportunities generated by constant changes in competitor pricing, not to mention saving you the hassle of monitoring your competitors by hand. Timing sales and price drops properly against the actions of the competition can leave you as the clear choice to your prospective customers.