Whether you are selling a product or a service, setting an optimum price for what you have to offer is an essential strategy to ensure you are able to rise to the top and overtake your competitors, as well as to help your business gain access to a larger “piece of the pie.” No matter how good your products descriptions are, if the price isn’t right, you won’t obtain an adequate number of sales. When you set your price too low, you will be suffering a loss, but set your price too high, and customers will turn to a competitor to find the product or service they require at a better price.
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A 5-Step System To Setting The Right Price For Your Product
Understanding the process that should be followed to set the ideal price for each product or service you have to offer is important, but many business owners do not understand all factors that need to be taken into consideration. Below, we will discuss a basic five-step process that you should use to ensure every item on your company’s menu is ideal – ensuring customers will not think you are “cheap,” but also not too expensive for their budget.
1. Determine The Cost Of The Product To Your Business
Before you go into any type of process to set up a price for a product or service you have to offer your clients – even before you list it with product descriptions on a website – know how much the product costs your business. If you are buying from a wholesaler, consider the price you pay for the product, shipping costs, and the possibility of import taxes. If you are producing the product yourself, consider the cost of the materials, as well as the cost for manufacturing the product. Let’s not forget that time equals money. You will be able to determine an appropriate price better to charge for a particular item that you are selling when you better understand the expenses involved in producing that service or product. Complete this step before moving on, as you need to know when you might end up running a loss.
2. Understand Your Target Audience
In addition to understanding how much your expenses are to provide customers with a particular product, you need to understand your target audience as well. Do research to determine who you need to target with your business – and who a specific item on your list is targeting. Consider looking at the demographics of your target audience, and try to understand the psychographics of the audience that is more likely to buy from you. Try to profile your most ideal target customer.
A good way to appropriately identify your target audience would be to look at current data that you might have collected. If you already own a website and have Google Analytics embedded, then look at the data presented by this tool. A Facebook pixel on your website can also provide you with valuable data in terms of the audience that are coming to your website.
Then try to find how much these people are really willing to pay for the products that you want to sell to them, or perhaps a service you wish to offer them. This will help you understand when you are asking too much, which could chase away potential customers, but also understand when these customers might look at your company as “cheap” – this is often the case when you set your prices too low, which may come across as suspicious to the customer.
3. Look At Your Competitors
Competitor research is an essential part of many business operations – from setting up your pricing structure all the way to promoting your business to a new audience. During the third step of the process, you need to determine who your competitors are and then take a close look at their pricing structure. Try to determine if they have a lot of clients – look at reviews on the internet related to the company. When a competitor serves thousands of clients, you know that your target audience is willing to spend the prices that the competitor charges for products and services you can offer too. See if you can beat these prices, without compromising quality and still profit at the same time.
4. Decide On A Pricing Structure That Is Right For Your Business
There are different types of pricing structures that can be used to make the process of deciding how much you should ultimately charge your customers easier and more streamlined. You need to decide on a structure or technique that fits your business the best – once you implement such a structure, you can always come back and fine tune prices that have been set after you have done some research. Many businesses rely on a cost-plus pricing structure, but some rather prefer to use a value-based approach. With a cost-plus structure, you would add a markup to prices based on a percentage, while value-based techniques rather consider how much a product is really worth to the customer.
5. Monitor and Revise Frequently
After setting up the perfect pricing model for your business, it is important to monitor the efficiency of the pricing techniques that you have decided on. Take a look at how each product is doing, and then make revisions as necessary. When you notice a product isn’t doing particularly well, see if you can reduce the price a little – even if it is just as a promotion for a short while. On the other hand, if the product does well, consider increasing the price slightly after a while. If you use an online e-commerce system, integrate it with a CRM platform that allows you to manage customer and sales data. These tools usually come with additional features that give you an opportunity to enter your expenses and the real cost per product. Google Analytics also has a useful tool for tracking conversions – be sure to make good use of this feature.
When setting a price for a product you are selling or a service you are offering, it is crucial to go through a process to assure an ideal price is set. Inappropriate pricing structures may lead to customers opting for your competitors – this way; you are handing clients to your competitors. If you are not sure how much to charge your customers for a product or service that you are offering, be sure to follow the five-step process that we have introduced you to in this post.