When it comes to business in order to sell your products or services two things must happen:
1. There must be a demand for what you are offering
2. It must be priced right so that the consumer chooses to buy that product
If either of these elements is missing then there will be no sale and no revenue. But how does one find the perfect price point? Well, it can certainly be a bit of a taxing project but it can be done. The price needs to hit a point where consumers will buy but it also has to be profitable for your business. In other words you need to find a balance.
The Consumer
Base your decision for price on the type of product. For example, consumers will hunt out lower priced gas stations to save money, or they’ll happily seek out the latest fast food special. If you charge $1.00 more than the competition for a cup of coffee they’ll go elsewhere. You need to find the point at which the consumer feels you are offering value and will therefore seek you out.
The Competition
The most common mistake new business owners make is to price their products based on what the competition is doing. You don’t know what the competition is paying for their products, you don’t know what their profit margin is, and you don’t know what their overhead is. While you can have a look at several businesses that sell what you sell and get a price range that seems to be common, you should set your price based on your overhead costs.
Determine the Right Price for the Right Quality
There are all different qualities of the same item. Just as you wouldn’t expect your consumer to pay top dollar for a low quality version, you shouldn’t be selling a high quality item for too little. For example, let’s say you sell shoes. If you are selling shoes made from synthetic materials you can’t charge what a pair of leather shoes costs, just as if you are selling leather shoes your price shouldn’t be that of a pair of synthetic materials.
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If you want to increase the price you are asking you move it up slowly keeping good records. When you reach the point where you are suffering revenue losses then you go back to the price where your consumers were still happy.
Today’s Market
Finally you have to be aware of the market you are working in. During tough economic times you may not be able to sell your goods for as much as you could during times of prosperity. Judge accordingly.
