As a business owner, imagine you are offering discounts, and your selling price is lower than your cost price. There is no doubt that you will not last long in the business.
Pricing your products is one of the cornerstone decisions you will make as a business owner. It impacts almost every aspect of your business. Setting a price that is too high or too low will, at best, limit your business growth. At worst, it could cause severe problems for your sales and cash flow.
That said, learning how to price a product or service may be a little different based on your unique business; however, you can follow these four steps to get started:
- Cost Analysis
Right from manufacturing to delivery, everything is driven by money. There are various costs involved in a business, directly or indirectly associated with the product or service.
To set a reasonable market price, you need to consider the cost incurred in creating your products or services and other administrative expenses. You must also ensure that your profit, which you get after deducting your costs from your market price, is enough to keep your business running in the long term.
- Market Evaluation
You should be aware of consumer behaviour and industry trends to accomplish the task of market evaluation.
To set reasonable prices for your products or services, you must identify and segregate your customers based on demographics, buying trends, etc.
Determine the amount of money they are willing to pay for your product or service and use that to set your pricing.
- Competition Analysis
There is a rare chance that you don’t have competition in your niche; therefore, you should be prepared to perform competitive analysis.
The procedure involves evaluating their business process, analyzing products or services, and understanding their pricing strategy to help you set your market price.
However, it would be best if you always remembered that you have to offer a superior product or service at a competitive price to gain prominence in the market.
- Consistently review your pricing strategies.
You cannot have a set-it-and-forget-it attitude when it comes to pricing products.
As a business owner, you must consistently assess your data, metrics and pricing strategies to ensure optimal sales and profit. Moving forward, you need to consider cash flow, sales history and changes in the customer market to make pricing decisions.
In conclusion, you can deploy any or all of the above suggestions to finalize your product or service price. In all of this, remember that your ultimate aim should be to maximize revenue and minimize expenditure.