How does it feel when you have to pay double the charge while taking a cab for the same distance you travel every day? Wouldn’t it make you look for cheaper alternatives? The price of a product or service can have a direct impact on your revenue and sales. Getting the price right can be tricky. Here is how you can set the right price for your product or service.
Why Price Matters
Simply because you’re in business to make money. The price of your product or service is crucial to how much you are making, whether you’re making a profit or a loss.
Think of the price of your product or service as a tangible aspect in exchange for the value you are providing. In fact, pricing is the single most contributing factor to sales improvement. An old study found that a 1% price improvement resulted in 11.1% increase in operating profit.
How to Get Pricing Right
Setting the price for a new product or service can be tricky, especially if you’re operating in a niche segment. To make things easier, we’ve put together a checklist of things to do before you can arrive at the optimum price for your product or service.
The easiest starting point is to factor in the cost of your product or service – how much money did it take for you to manufacture/assemble/offer your product or service? Were middlemen involved? What about employees? Write down how much it cost you to put up your business and add up the costs.
You want to be able to offer competitive prices. Look at how other products and sellers (of your category) in the market are offering their product/service for. A proper competitor analysis can help you arrive at a few pricing options. Here is a handy template that can help you get started.
Who are you going to sell it to? Your buyer is a major element in your pricing check-list. Do some research. Ask around your target segment how much they would be willing to pay for your product or service. There are many ways to ask your target group price-related questions. Here is a sample survey form that you can use to complete your buyer analysis.
Based on the cost analysis, here is a simple two-step equation that you can apply to arrive at the best price for your product or service:
Cost of Material + Cost of Labour + Overhead Costs = Total
Total + Desired Profit in % = Correct Sale Price
You could also give this equation a try:
Cost of Labour + Cost of Material x 2 = Correct Sale Price
Magic Pricing Tips That Work
There are several pricing strategies that the textbooks teach us. But every business is unique and a model that worked for someone else may not work for you. Here are some real, magic pricing tips that can help you win over your buyers.
- SALE! SALE! SALE! – The “Sale” gimmick always seems to work. It’s more of a psychological effect. Slash a higher price to show a flat discounted price and you’ll sell.
- Odd Number – Pricing your product or service at an odd number can definitely help you sell more. Try 499 instead of 500 or 99 instead of 100. It just plays visually better on the buyer’s psychology.
- Value for Money – Club your products into a tiered pricing method. Offer a selected service for a certain price and offer the same product/service with an added benefit for a better price. Segment your offerings into “good,” “better,” and “best.” This works best for a subscription model.
To achieve the optimum price, your costs play a big role. Why burn money on a payment gateway when you can get one for free?!