Calculating what your goods and services actually cost you is the first step in pricing. You have to include everything from material to fuel to rent, utilities and maintenance.
If your overhead is lower than a competitor’s, you might consider selling a product for less. But be careful. Underpricing for the market is the most common mistake companies make.
According to Money, the sweet spot above costs depends on factors that include the area in which you do business, what the competition is charging, and even the state of the economy.
Don’t forget to add the cost of advertising. Conventional wisdom dictates 2 percent to 4 percent of sales for advertising, say advisors writing in INC. Magazine. In retail, however, it’s higher. A motorcycle shop, for example, should spend 5.8 percent of gross sales for advertising and promotions, according to the Motorcycle Industry Council.
Direct mail and Web
* If you are selling over the Internet or by mail, getting to know your market and your prospective customers can help you determine pricing.
* Getting to know your competitors is even more important. Know who they are, the quality of their products and what extra services they provide.
* When your product is new, different or unique, you might try testing various prices.
In some markets, people are willing to pay more for the same item because they attach more value to it. One advertiser offered a product for $29, $59, and $95. There were more orders at the $95 price, so that was the advertised price thereafter.
* Survey your ideal customers to decide what features make your product attractive and what other features they would like to have.
Pitfall: Studies have determined that it’s more profitable to spend money attracting new customers than pleasing present customers, because there are many more prospective customers. Present customers’ input, however, could make your products more pleasing to all.
* Create urgency in your advertising. Offer a limited-time discounted price, which will encourage bargain shoppers to buy before the price goes back up.