A strong sales team is like a powerful engine, but underpriced products are like putting that engine in a lawnmower instead of a Lamborghini. It’s critical that you establish a selling price for your product that pleases both customers and your team’s bottom line — but this is easier said than done. Finding the correct price for a new business can be difficult, but here are some pointers to help your team obtain the deal flow they need to meet their objectives. Let’s get started.
The Secret Sauce to Product Pricing: Formula
You may always price your product according to the selling price formula if you want to look at a simple pricing approach.
Cost Price + Profit Margin = Selling Price
This formula calculates the price of a product in a particular category. To determine a product’s selling price, multiply the cost price (the price a merchant paid for the goods) by the desired profit margin (a percentage of the cost price).
But, when you think about it, this formula isn’t appropriate for every firm. There is no definitive way for pricing a product because there are so many different pricing strategies that organizations can use. Any “formula” you use will be determined by a number of criteria, including your industry, company size, structure, and overall business plan.
However, there are a few factors that have a consistent role in how most things are priced – factors that appear in practically every pricing “formula.” Here are some crucial topics to think about.
Fixed & Variable Costs
The most basic factor in determining a product’s price is its cost. Your goal will always be to make money, regardless of industry norms, trends, or competitors surrounding your product. To do so, you must first determine the costs associated with producing your goods.
Consider your variable costs, which fluctuate with your output level. Packaging, raw materials, and transportation costs are examples of these costs. Assign a monetary value to the time you spend creating your product and include it in your calculations. Knowing how much your time is worth is essential.
Then think about your fixed costs, which are the ones that don’t change no matter how much you produce. This could include the rent you pay for your facilities, the costs of any permits your company may require to manufacture your product or the fixed wages of your personnel.
Add up all of these expenses to find out how much it costs to produce your goods on a monthly or annual basis. Use that figure to figure out how much money you’ll need to make on a regular basis.
Check your Industry & Competitors
It’s critical to keep an eye on the competitors. Determine what customers are prepared to pay for similar products and utilize those industry standards as a guide. That sets the scene for a process that requires critical thinking and self-awareness: figuring out what makes your goods apart from the competition and putting that into your price.
If you want to sell at a higher price point, you’ll need to persuade customers that your product is top-notch. If you’re seeking to sell at a lower price point, be prepared to demonstrate to potential customers that they won’t be sacrificing quality for money if they buy your product.
Brands like Tatcha, for example, charge a higher price for beauty goods than the majority of competitors. In their line of skin creams costing more than $50 per bottle (INR 3800 Approx), the business touts the use of pure, more expensive components as life-enriching or as a vehicle to achieve harmony “from the skin to soul.”
Brands like e.l.f. cosmetics, on the other hand, use marketing to appeal to budget makeup and skincare product aficionados by giving them what they want while ensuring quality – without the expense.
If you think you can pull off one of those messages, you should price your products higher or lower than your competitors. Always know where your product fits into its sector, no matter how you plan to price it in relation to your competition. This necessitates devoting time and effort to determining the public impression of both you and your competitors.
Buyer Persona
A target market exists for every product. Certain customer personas will be more interested in what you have to offer than others. These personas will have a wide range of interests, sensitivities, attitudes, backgrounds, and, most significantly, buying behaviors. Learn about the people who are most likely to buy your goods and factor them into your pricing.
To figure out who you’re appealing to, use surveys, buyer persona interviews, social media, and a variety of other tools and strategies. Recognize their top priorities. Are they willing to pay a higher price for better quality? Are they on the lookout for a bargain? Do you believe they’ll stick to your brand?
It won’t be easy, and determining definitive buyer personas to consider when pricing may require a lot of trial and error. Even so, if you stick with it, you’ll place yourself in the greatest possible position to hit the sweet spot for your product’s price.
Trial & Error
Because pricing a product isn’t an exact science, there’s no assurance you’ll get it right the first time. If your price isn’t working for you, don’t be afraid to adjust it. Just make sure you’re making a profit and meeting your expenses on a regular basis. Make minor adjustments as you go, and you’ll finally arrive at the perfect price point.
However, there are some potentially dangerous scenarios that you should always be aware of. You may be forced to modify prices due to a variety of external circumstances that vary often. This could be the quantity of stuff you can ship, the costs of your competitors, the effectiveness of your marketing activities, or public perception of your product. Your price will most likely fluctuate. It will take some trial and error to get it right, and you may find yourself making adjustments on a regular basis.
Conclusion
We don’t strive for perfection when it comes to pricing. In fact, charging the correct price right away is uncommon. Instead, using these guidelines, you can choose initial pricing that will assist your sales staff in getting the goods to the consumer while also adding significant value. You’ve already put in the effort to create an excellent product, so go ahead and set that price.
The biggest plus with market research is staying on top of trends and of course – the market! If your vision is to beat your competition, market research should be at the top of your list and Maction can help you with that. Book a call with us today to explore what a market research partner can do for you
