Pricing your products too low, your customers might assume that you have low-quality products — which could make your profit margin suffer. Pricing your products way too high, however, make people not buy them and your profit margin would still suffer.
How could you set your products to benefit your profit margin? Below are some tips:
Know Your Market
Find out how much your competitors charge and how much potential customers would be willing to pay and then decide if you should beat them or match them. Take note though that matching prices could be risky because you need to make certain that you have worked out all your costs, including all indirect and direct expenses, which brings us to the next tip…
Figure Out Your Costs
This includes direct costs, such as the money spent to develop a service or product as well as variable costs for packaging, materials, etc. Make sure to include your fixed costs like wages, rates, and rent. Add these all together then divide them by volume to get a break-even figure per unit.
Select the Best Pricing Strategy
For example, you could choose between value-based pricing and cost-plus pricing. With value-based pricing, you price your products on how you want your customers to view your product’s value. While with cost-plus pricing, you add a markup percentage to your costs.
Consider Value-Based Pricing
The main thing with this is that you have to really know your market before setting a price for your products based on their value. For instance, you might spend about $10 to bring a product market but might get away with charging customers $25 if this price is the perceived market value. If you distribute your products through retailers, make sure they follow your minimum advertised price policy to be certain that the value of your products remains untarnished by lower prices.
Take into Account Other Factors
Could you lower prices on some products to get higher margins on your other products? What about the impact of VAT on your prices? You might also have to calculate varying price points for different markets or territories.
Put simply, the best price takes into account your overall cost and maximizes your profit margin — all while attracting and retaining customers. Keep in mind that costs, competitors, and customers could also change, so you might need to modify your pricing to keep up.
With this in mind, always communicate with your customers and keep track of your competitors to help make certain that your pricing is as optimal as can be.