Pricing your product is one of the most critical parts of your product development journey. Getting pricing right is key. It can determine whether your business succeeds… or fails.
Getting pricing right is key.
It can determine whether your business succeeds… or fails.
Charge too much… and people may opt for a cheaper alternative instead of purchasing your product.
Charge too little… and you may not generate enough revenue to keep the business alive.
Enventys Partners has helped thousands of clients price their products.
Here is the game plan we use every time:
1. Understand Your Costs
Firstly, you need to know how much it costs to make your product. This includes direct costs like materials and labor, and indirect costs like rent, equipment, and overheads.
If you’re producing custom-designed lamps, your direct costs could be the:
- Wages of the craftsmen.
Indirect costs could be the:
- Rent for your workshop
- Cost of the machinery
- Electricity bills
You have to factor in ALL these costs to figure out the ‘cost price’ of each lamp.
Without this information, you risk pricing your product too low and losing money.
2. Research Your Market
Next, you need to understand what people are willing to pay for your product.
This is also known as the ‘market price’.
You can do this by looking at similar products in your market and seeing how much they’re sold for.
Suppose you find out that other custom-designed lamps are selling between $50 and $150.
That gives you a price range to consider.
If your lamps have extra features or unique designs, you might price them towards the higher end.
3. Factor in Your Target Profit
Once you have determined your costs and researched the market price, you can decide on the profit you want to make.
There are two main options to consider:
1. Calculate a markup percentage based on your costs.
Calculating a markup percentage is a the most common pricing strategy.
It’s super simple. You just an extra percentage on top of the cost of making your product.
To do it right, you need to know your EXACT cost price and then decide on the profit you want to make (while still staying competitive).
Here’s an example:
Suppose your cost price for a lamp is $40, and you want to make a 50% markup.
You would add $20 (50% of $40) to your cost price to get a selling price of $60.
So, you would sell the lamp for $60, which includes a markup of 50% or $20.
2. Apply value-based pricing.
This strategy involves setting a price based on how much your customers believe your product is worth.
If your lamps are good for the environment and use materials that are sustainable and light bulbs that save energy, customers who care about the environment might be willing to pay more money for them.
This means that the price of the lamps is based on how much people think they are worth, not just how much it costs to make them or how much other lamps cost.
These two approaches can conflict with each other, so it’s crucial to find the right balance between them to maximize profit while staying competitive in the market.
4. Test, Learn, and Adjust
Pricing isn’t set in stone; it’s more of an ongoing experiment.
Consider trying ‘price testing’ where you change the price of your product for a short period to see how customers respond.
For instance, if you’re uncertain whether your customers would pay $100 for your eco-friendly lamp, try offering it at this price for a month.
If sales don’t slow down, your customers likely see the value at this price point.
On the other hand, if sales dip, it could be an indication that your price is too high.
Always be ready to learn from these tests and make adjustments.
The key to successful pricing is staying flexible and responsive to your market’s feedback.
Mastering the pricing game is no joke.
You can spend years perfecting your product…
And millions manufacturing it…
If you set the price wrong, it may never leave the shelves.
But now you have a strategy – so that won’t happen to you.
All you have to do is use it!
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