Pricing a product is one of the easiest things to think about and one of the toughest things to do.

New startups, as well as more experienced companies, face the issue of pricing their products all the time.

How much should you price your product?

If you price it too high, people won’t buy it.

If you price it too low, your profit margins will be next to nothing. Furthermore, your customers will think that your product is of low quality and will abstain from buying it.

An optimum pricing strategy factors in all costs and at the same time maximizes your profit margins, while your product remains attractive to your customers.

There are many different pricing strategies and unfortunately, there isn’t “one to rule them all”. You have to find the one that suits your business / product / market.

The strongest and the weakest point of any pricing strategy is the flexibility you have in pricing your product.

Pricing your product is not something you should ballpark. It requires a lot of research beforehand.

 

Calculate your Costs

First of all, you need to know how much your product costs so that you have a “starting” point to work on. You should take in mind the: manufacturing costs, labor costs, marketing costs, ROI capital, salaries, etc.

A starting price should cover all the aforementioned expenses and allow for a profit.

Note: the easiest and most effective way to reduce a price is to lower the costs.

 

Study your Competition

Knowing your competition is very helpful. Take a look at the prices for the products in the same niche. How much are they priced? Why are they priced higher or lower than the price you have in mind for yours? Do they offer something more or less in terms of value? Maybe your product adds extra value, maybe your product offers additional services.

Be prepared for head to head comparisons – your customers will do it too. If your product is of higher value, find the competitive price difference and price upwards. Accordingly if your product is of lesser value, price it downwards.

Competition helps put things into perspective.

 

Who is your Target Customer?

If you plan on selling your product to an elite of high paying customers, you will make more money per sale but take a smaller piece of the customer pie with few sales. If you plan on targeting the mass, you will make many more sales but the profit per sale will be lower – you want quantity.

For example Patek Philippe, the watch designer brand, targets exceptionally high paying customers while Swatch  targets the masses with much more affordable mainstream watches.

If you don’t have a specific plan and you want to target both groups, then you should divide the market into segments and offer products for both groups. For example, you can offer a “premium” version of the product for a higher price that will target the high paying customers and at the same time you can offer a mainstream “lighter” version of the product that will attract the masses. If you product line and your customer base grow, you can always divide the market into more segments but you shouldn’t overdo it. It’s always good for the customer to have multiple options.

Combining the two strategies is advisable when you don’t have a specific customer niche.

 

Split Test Different Prices

Sometimes the only effective method of truly finding the right price for your product is to split test different price points with real customers.

A good way to do this is to create two or more landing pages and offer different prices for each page.

Check the results and see which page converts best and set your price accordingly.

 

Don’t be Afraid of Higher Prices

That’s it if you offer something that genuinely adds value to your customers and is of an acceptable quality.

It will surprise you that many times customers are willing to pay more than you think.

Don’t be fooled by the numerous sellers that flood the market with a cheap version of your product.

This happens in pretty much every product niche.

They rely on really high volume sales to compensate for their ridiculously low prices.

If you offer something valuable you want your customers to know that. You have to differentiate from the rest of the sellers.

Additionally, you want to brand yourself and your company. By pricing too low you will make your customers think that they are not getting their money’s worth and you brand yourself as another mass seller that offers cheap alternatives to quality products.

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