Not so secret, secret: Pricing products is one of the hardest things you’ll have to do as a business owner.
Pricing products in the sweet spot of not too expensive so no one buys it but enough so that your margins aren’t so small that any error puts you in the negative.
There Isn’t One “Right” Way
Unfortunately, there’s no surefire formula to make sure you do this correctly the first time.
You can try many different strategies; they require some trial and error, but what doesn’t in the world of being a business owner anyway?
You could check things like your competitors’ prices, pinpoint your target customer and what they’d pay, and understanding the relationship between quality and price.
There is so much flexibility, but this is also what makes it challenging.
Remember Your Why
Pricing might be complicated, but the goal is simple: to make money. Selling the product is the top priority.
While this is something we probably already know, this simplifies the result price goals. Lose the humility and fear of pricing too low and drop the ego of pricing too high; both are just way too expensive.
Under-pricing has a terrible effect on your bottom-line. Sometimes business owners make the mistake of thinking that if they’re new or in a down economy, they should low-ball themselves and their product, but this isn’t the case.
If something is priced too low when people are tight with their money, the customer might think that the product is cheap.
A customer thinking your product is inexpensive is ideal, but they think it’s cheap, and now you’ve got a bad reputation.
On the flip, Overpricing doesn’t do you any good either. The buyer will always compare your price to everyone else’s, and if your price isn’t comparative or you’re not offering something special for the markup, you can expect the customer to go to any other seller of your product or something similar.
A good rule of thumb to keep in mind is the fair price principle. The customer will subconsciously ask themselves: “Is this a fair price?” If you wouldn’t objectively pay your product’s price, you can guarantee your impartial customer won’t either.
Start Low; Aim High
Base your low-end price on your break-even price; in other words, know where you can’t dip below, and then start adding value from there.
Your costs, your expenses, your employees, rent, labor. You can list all of this out in a spreadsheet to see it all in one place and then decide what you want your revenue to look like.
As we’ve discussed, be reasonable, but be ambitious. Real people who want your product are on the other end of this decision; keep them in mind when you’re making this decision. Pricing can seem daunting, but it’s just a matter of a little common sense and a little math.
Trial and error are all part of the process, so if you need a few tries to figure it out, it’s not a big deal in the grand scheme of it. Happy pricing!