Pricing your products is one of the essential decisions you will make, because it impacts almost every aspect of your business. When you ask customers to pay too much for your product or service, they will stop buying; when you ask too little, your profit margin slides. Not to mention, customers might also perceive that your product is poor in quality. That is why it is all too easy to get stuck on pricing when you are launching a new store or product, but it is important not to let the decision stop you from launching.
An "optimum price" factors in all your costs and maximizes your margins while remaining attractive to customers. Keep reading to find out how.
1. Work out your costs.
- Add up your variable costs (per product)
Understand all of the costs involved in getting each product out the door.
If you order your products, see how much each unit costs you, which is your cost of goods sold.
If you make your products, see how much raw materials cost you, and how many products you can create from it? Then you could have an estimate of your cost of goods sold per item.
*Time you spend on your business is valuable, too. To price your time, set an hourly rate you want to earn from your business, and then divide that by how many products you can make in that time.
- Add up your fixed costs
Variable costs are not your only costs. Fixed costs are the expenses that you would pay no matter what, and that stay the same whether you sell 1 product or 1000 products. For instance, if you have an online shop on Luulla.com, your fixed cost would be monthly subscription fee for your store, wages.
Now, add variable costs and fixed costs together and divide by volume to produce a unit break-even figure.
2. Know the market.
Once you have got a total number for your variable costs per product sold, it is time to know the market. Find out how much customers will likely to pay for your products, as well as how much your competitors charge. You can then decide whether to match or beat them. However, simply matching a price is dangerous, though - you need to be sure all your costs - both direct and indirect - are covered.
3. Decide a pricing strategy.
Good pricing strategy helps you determine the price point at which you can maximize profits on sales of your products or services.
There are 6 pricing strategies you could choose from.
- Pricing at a Premium
- Pricing for Market Penetration
- Economy Pricing
- Price Skimming
- Psychology Pricing
- Bundle Pricing
4. Think about other factors.
After you have decided which pricing strategy, you must also think of other factors. For instance, you might need to calculate different prices price for different territories, markets or sales you make online. How will charging VAT have an impact on price? Can you keep margins modest on some products in order to achieve higher margin sales on others?
5. Test and iterate once you set your online store live
Prices can seldom be fixed for long. Your costs, customers and competitors can change, so you will have to shift your prices to keep up with the market. Keep an eye on what's going on and talk to your customers regularly to make sure your prices remain optimal.
Posted by Luulla Admin
Friday 8 Jun 2018
