No matter what type of product you sell, the price you charge your customers or clients will have a direct effect on the success of your business. Though pricing. Cost-plus pricing involves adding a mark-up percentage to costs; this will vary between products, businesses and sectors. Value-based pricing is determined by how much value your customers attach to your product. Decide what your pricing strategy is before making a calculation. industry pricing consultant. Pricing has far reaching effects beyond the cost of the product. Pricing is just as much a positioning statement as a.
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Online buyers comes from all walks of life. Likewise if you price a product too low some buyers get suspicious. Most people overestimate the number of people they think are going to buy their product. You might guesstimate 1, When in actuality you may only have the capacity for Before you set your price, you have to gain some insight into how much room you have to maneuver. A good way to start is to get a clear overview of your costs.
Costs can be divided into variable and fixed costs. Variable costs are the costs you incur that are directly linked to the product you sell. In the online market, you are usually also paying to acquire the customers. Fixed costs are the costs you incur to keep your business running.
These include employee wages, the rent for your office, telephone costs, utilities and so on. You are expecting to sell videos a month. This is your lower limit. Look at your major competitors to estimate what this price could be.
The price you charge for your product has a major impact on sales. Choosing the price, like choosing the media or the product, is fairly easy to do. Start by finding out what the competition is doing. To be successful you will need to find this optimal selling price: This optimal price can change during the life cycle of the product—being higher when the product is hot, for example—but it is always important to know.
If you deviate from it significantly, you will reduce profits or even create losses where profits should have been. Here are some guidelines to keep in mind:. Do this experiment at home. Fill 3 bowls with water: Put one of your hands in the cold water and the other one in the hot water. Keep them in there for like 30 seconds. Now put both of the hands in the lukewarm water.
One hand feels cold, the other one warm. This is the contrast principle. Nothing is expensive or cheap, its what you compare it to.
This works very well with expensive products as you can make them seem not as expensive compared to other products. Go to any high end retail store and see how this is done effectively. Decoy pricing is a method of strategically pricing products so that consumers will choose the one that you most want to sell to them. When people were offered to choose a trip to Paris option A vs a trip to Rome option B , they had a hard time choosing.
Both places were great, it was hard to compare them. Now they were offered 3 choices instead of 2: Now overwhelming majority chose option A, trip to Paris with free breakfast.
The rationale is that it is easier to compare the two options for Rome than it is to compare Paris and Rome. Obviously 3 looks like the best deal. In an experiment Dan ran with this setup, 16 subjects chose option 1, zero chose option 2, and 84 chose option 3. What if we remove option 2 and have people choose between print-only and print and web access, leaving the prices the same? The results should be the same as the prices did not change, right?
Instead, the results changed dramatically. Check out this test they did with selling beer. People were offered only 2 kinds of beer: Nobody bought the cheapest option.
Some people will always buy the most expensive option, no matter the price. Moral of the story: The best way to do it is to add a cheaper decoy price option and a more expensive contrast option. Prices ending with the number 9 sell better.
Test described in the pricing strategy book Priceless said a product was sold for 3 different prices: There is one way of displaying the price that is even more effective than prices ending with 9.
Crossing out the previous price is very effective. During a downturn, you may have other business priorities, such as sheer survival, so you may want to price your products to recoup enough to keep your company in business. How to Price Business Services. The more you know about your customer, the better you'll be able to provide what they value and the more you'll be able to charge. This type of research can range from informal surveys of your existing customer base that you send out in e-mail along with promotions to the more extensive and potentially expensive research projects undertaken by third party consulting firms.
Market research firms can explore your market and segment your potential customers very granularly -- by demographics, by what they buy, by whether they are price sensitive, etc.. If you don't have a few thousand dollars to spend on market research, you might just look at consumers in terms of a few distinct groups -- the budget sensitive, the convenience centered, and those for whom status makes a difference.
Then figure out which segment you're targeting and price accordingly. Know Your Costs A fundamental tenet of pricing is that you need to cover your costs and then factor in a profit. That means you have to know how much your product costs. You also have to understand how much you need to mark up the product and how many you need to sell to turn a profit. Remember that the cost of a product is more than the literal cost of the item; it also includes overhead costs.
Overhead costs may include fixed costs like rent and variable costs like shipping or stocking fees. You must include these costs in your estimate of the real cost of your product. X is your cost of raw materials, labor, rent, and everything it took to make the product so that if you sold it you would break even," advises Toftoy. That may depend on your business. Restaurants overall make about 4 percent, which is pretty low.
If you want 10 percent then you factor that into your costs and that is what you charge. A good rule of thumb is to make a spread sheet of all the costs you need to cover every month, which might include the following:.
List the dollar amount for each on your spreadsheet. The total should give you a good idea of the gross revenues you will need to generate to ensure you cover all those costs. Know Your Revenue Target You should also have a revenue target for how much of a profit you want your business to make.
Take that revenue target, factor in your costs for producing, marketing, and selling your product and you can come up with a price per product that you want to charge. If you only have one product, this is a simple process. Estimate the number of units of that product you expect to sell over the next year. Then divide your revenue target by the number of units you expect to sell and you have the price at which you need to sell your product in order to achieve your revenue and profit goals.
If you have a number of different products, you need to allocate your overall revenue target by each product. Then do the same calculation to arrive at the price at which you need to sell each product in order to achieve your financial goals. If so, you can use their pricing as an initial gauge," Willett suggests. Be cautious about regional differences and always consider your costs.
The key here is to compare net prices, not just the list or published price. This information could come from phone calls, secret shopping, published data, etc. Make notes during this process about how your company and products -- and the competition -- are perceived by the market.
Be brutally honest in your evaluation. Know Where the Market Is Headed Clearly you can't be a soothsayer, but you can keep track of outside factors that will impact the demand for your product in the future. These factors can range from something as simple as long-term weather patterns to laws that may impact future sales of your products. Also take into account your competitors and their actions. Will a competitor respond to your introduction of a new product on the market by engaging your business in a price war?
When Customers Grumble about Price Hikes. One size does not fit all. You can only go so far pricing all your products based on a fixed markup from cost. Your product price should vary depending on a number of factors including:.
In order to make this call one way or the other, you should first understand what's already working. Analyze the profitability of your existing products, so you can do more of what works and stop doing what doesn't work. You want to find out which of your existing products are making money and which are losing money.
You may be surprised at how many of your products are losing money -- fix those ASAP. You should also constantly re-evaluate your costs. To sell it right, you have to buy it right. If you are having a hard time selling a product at an acceptable profit, the problem may be that you are not buying the product right. It may be that your cost is too high rather than your price is too low. When to Raise Prices -- and How You should always be testing new prices, new offers, and new combinations of benefits and premiums to help you sell more of your product at a better price.
Test new offers each month. Raise the price and offer a new and unique bonus or special service for the customer. Measure the increase or decrease in the volume of the product you sell and the total gross profit dollars you generate. It is a fact of life in business that you will have to raise prices from time to time as part of managing your business prudently. If you never raise your prices, you won't be in business for long. You have to constantly monitor your price and your cost so that you are both competitive in the market and you make the kind of money you deserve to make.
If a price increase is too high, customers will react pretty quickly. Also watching the competition can help - if you've made a positive change in prices; competitors are likely to follow suit. You don't want to alienate your existing customer base by raising prices too steeply, especially during a recession.
If the customer perceives that the firm's costs are going down while their price is going up. This will not be received well and is likely to backfire. You can always choose to discount your products or give customers something for free in order to get them to try your product or generate traffic to your storefront or website. You can make Wednesday senior citizen day when seniors get a 20 percent discount.
One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the. Here are 6 strategies that businesses implement when pricing products and services: 1-pricing at a premium, 2-for market penetration. The price you charge for your product or service is one of the most important business decisions you make. Setting a price that is too high or too low will - at best.