How to price your Product

Does your product price determine your sales increase or decrease?

Let's find out…

If you’re an aspiring business owner, you might be wondering about how pricing can affect your business, how to set the price on your product, and what pricing strategies you should be offering your clients to make the biggest impact on your income.

If that’s you, keep reading because I’m about to show you some common pricing factors and formulas to make this situation easier for you.

Okay, so that being said….

I've noticed some wrong business misconceptions, especially about clothing lines entrepreneurs like you make.

That is, 

• Predicting how much profit they desire from their product and that's it, without taking factors like product quality, target customers, location, etc into consideration.
  As a result, you could profit or loss as a result of overcharging or undercharging your product.
• Likewise, copying your competitor's pricing strategies.
  Don't get me wrong, it's acceptable to consider your competitors' prices before assessing your own, but you shouldn't use their exact price because it may not always be effective.
  
  What if their pricing method does not fit your business,
  for instance - after analyzing your expenses and you found out that you ran at a loss because you spent more than your competitors in buying that product.
  
  Do you just mope around and wait for miracles to happen?
  
  If you are following these approaches you are at a high risk of losing.
  The truth is everyone has that unique *pricing strategy* that suits them, it's all up to you to figure out yours.
  
   So let's cut the chase and get down to business.

What is Pricing?

Pricing is the amount of money that you charge for your products after evaluating all your expenses for that product.

 It's one of the first things that can push a customer towards, or away from, buying your product. 

However, it should be calculated strictly.

As simple as it seems, it's one of the most important aspects of your business you shouldn't joke about. 

There are several factors to consider while deciding on a price.

You can't just base your product's price on how you feel.

Let's look at some of these factors

Importance factors to consider when setting price

Do Market Research

Before setting a price, it's important you understand your market, that is, become familiar with your target customers on how they buy, the price they are comfortably willing to pay, and the quality of your product.

Try and understand your competitors in terms of the product you are setting a price on, how they set theirs and why they are using that pricing method or price range.

Also, determine the product trends as well; if you are selling that hot trendy fashion item, you may want to raise your price because they are in high demand. However, this relies on whether the trend is temporary or long-term.

Doing this will provide you with the market information you need to make pricing strategy decisions. Whether you are planning to increase your price or thinking to price a new product, research is the key to an effective pricing strategy.

Next up is to,

Find Out Your Business Fixed & Variable Costs

This is another important aspect most business owners ignore. You don't just go about and use the amount you bought a product, add the profit you want to make to determine your selling price.

You simply need to write down every dollar you spend on your business, you must be aware of your business expenses. That's where the fixed price and the variable price come into play.

Fixed costs remain the same no matter the number of products you sell. Rent, insurance, loan payments, and employee salaries are a few examples.

Variable costs change with the number of products you sell. They include packaging, delivery, or the cost of goods sold(COGS).

Cost Of Goods (COGs)

These totals combine with the other money you used to buy the product. That is the purchase price of the item, the delivery cost (if any), any required service fees, and any applicable fees for handcrafted items.

For example, suppose you order six raw materials to make shoes and make them yourself.

Divide the price of a single order of raw materials by the number of products that can be produced from that order.

You must understand these factors before developing your pricing plan because your business will fail if you don't make a profit.

Set Your Business Volume & Branding Goals

choose the goals for your business goals.

What level of income style, profits, and sales volume goals do you have in mind? Is it high prices with low sales volume or low prices with large sales volume?

Although a profitable firm can be built using either approach.

Secondly, how do you want your customers to see your brand? If you sell at low prices, you will position your brand as a place for buying cheap products and vice versa.

Pricing must align with your store’s branding strategy and desired position in the minds of consumers.

Once more, think about your target audience before deciding

Quality of your product

You also want to consider the quality of your product or services. 

Is it high, medium, or low quality?

It all depends on what you have because increasing your price without providing high-quality products will push your customers away and move to your competitors. This approach is tagged as bad business.

Target Customers

It is crucial to understand your target customers: 

Are they teenagers?

If so, you might want to adjust your price to fit their budget.

Alternatively, it's possible that your buyers want high-quality items with a classy taste. You don't want them to see your brand as cheap or fake because your price is too cheap, especially if the quality meets up to their standard. 

My point is you need to understand your target customers before considering your price

Now we know what to consider before setting the price.

Let's see how then to calculate it 

How to set price using markup pricing method

Markup

This involves taking the amount a product costs you, the business, then adding on top the amount of profit you want, expressed in a percentage of the final selling price.

For example, if your product costs you #100 and you want to make #66 for every sale, your final selling price would be #166. That’s a 40% gross profit margin.

the markup is 66% because #166 is 66% of #166.

So, to calculate your Selling Price(SP)

SP = (cogs x mp) + cogs

SP = (100 x 0.66) + 100

SP = 166

Where: SP ( selling price), COGS ( cost of goods and services), and MP (margin profit)

To set the price of your product automatically use this calculator. Check our profit calculator

There is no single method that will work for everyone because it is unique to each firm.

You'll be able to beat out the competition and catapult your firm to even higher profits if you have strong statistics to back you up and well-thought-out pricing tactics.

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