A constant challenge of running an eCommerce business is figuring out how to price your products. It is very important that you set your prices right.
Your products need to be priced smartly so that they are conducive not only for your profit margins as business owners but also agreeable to the customers.
While you may choose a particular pricing strategy out of many, pricing models effectively are meant to help you arrive at a selling price for your product or service depending on your ultimate business goal.
Here are a few things you can keep in mind when faced with the question of how to price your product.
8 Tips On How To Price Your Products
1. Identify Business Goals
Business owners, be it a large or small business, need to first ensure that their business goals are identified correctly.
Why? Because it plays a huge role in deciding the price of your products. You need to be very clear whether the goal is to make money or gain market share, or both.
Making money from a business entails generating enough revenue through the sale of your product or service such that you not only break even on your base price but also generate profit margins that can be utilized to expand your business and achieve high sales volumes.
Therefore, it is essential to first chart out your business goals before figuring out how to price your products.
2. Understand Business Priorities
Business priorities might not only be restricted to generating high-profit margins, especially in the case of a small business, the focus can also be on gaining market share.
In such scenarios, you can’t set the price too high for your product or service, which will need to be closer to the base price.
Your business priorities will also have influence in deciding whether or not to opt for an omnichannel retail strategy or apply another simpler revenue channel. This will determine how you sell your products and how to price your products.
Search your .store domain NOW!
3. Know Your Customer
Getting to know your target audience is extremely critical before you come up with fixed costs for your product or service.
You can resort to undertaking market research or analyze the behavior of your existing customers’ basis the data available.
You need to understand their preferences, their buying pattern (if they would be willing to pay a higher price for a good quality product or go for the one that is most cost-effective, and so on.)
Segment your customers into buckets and accordingly set your prices right. This will help you to address the dilemma of ‘how to price your products?’.
4. Know Your Products’ Costs
The most fundamental requirement that your pricing models need to fulfill is to cover your costs and then factor in profit margins.
It is therefore essential to know exactly what is the cost of manufacturing and distributing your products.
Before you set your prices, you need to consider both fixed costs as well as variable costs. Cost for procurement of raw materials, manufacturing cost, maintenance cost, logistics & shipping, marketing, et al.
While several business owners choose to sell their products at the bottom line prices, it might not be a great pricing strategy and not necessarily suit your business goals or ensure sufficient profit margins.
In order to be profitable, it is important that you at least break even on the base price and then sell it at a higher price (cost-plus pricing strategy) to generate enough revenue to keep the business sustainable.
5. Know Your Revenue Target
For businesses that have a foothold in the market, in order to sustain or grow further, it is essential to have a target for revenue generation.
Since profits can, in turn, be used to further expand the business. Your target revenue has a very important part to play in deciding how to price your product and how to drive sales.
The selling price of your product and the sales volumes are major contributors to ensuring you meet your revenue target. Depending on the number and kind of products you sell your pricing strategy can vary.
For example, if you’re selling only one type of product you may resort to cost-plus pricing in order to make higher profit margins, whereas you can resort to variable costs and pricing strategy for different products if you’re selling multiple products.
Search your .store domain NOW!
6. Know Your Competition
This is extremely critical especially when the target is to gain market share, as business owners can fix costs at a lower or higher price as compared to competitors.
In case your product is higher quality as compared to competitors or you wish to establish your product as being premium, you can set your prices higher than competitors.
In case you wish to gain market share and the quality of your products is at par or lower than available in the market, you can’t set the price too high and might need to charge bottom line or lower prices in the market.
7. Know Where The Market Is Headed
Beyond knowing the price of products and services being offered by your competitors, it is extremely critical to analyze the demand for your products, what your customers’ expectations are from your product, and if there is a new trend that is emerging that may vary the way you do business.
Factors such as costs of raw materials going up or down can vary the way you set your prices for products as you may want to raise your prices in case the raw materials become more expensive.
It is also important to keep a check on new players in the market and what the existing competitors are up to – their sales volumes, pricing strategy and pricing models, and their market share – even if it is a small business.
You may need to rethink your pricing models basis of how the market is behaving.
8. Raise Your Prices Periodically
You will always need to reconsider the prices of your product and lower or raise your prices depending on factors affecting your production cost, or even the demands of the market.
You may be selling at a lower price when the demand for your product may have increased, which can give you a window to raise your prices when it is guaranteed that customers might be willing to pay slightly more for the product.
Same is the case with lowering your prices – in case your pricing strategy is not generating enough sales volumes, and especially if there are multiple options available in the market, you may want to lower your prices closer to the bottom line or base price.
Setting your price too high may hamper your overall business and it is, therefore, a safe bet to have variable costs as per the market demands.
Keep these handy tips in mind when faced with the question of how to price your products.
It is crucial that you understand your own product, the cost of creating and marketing your product, as well as your customers’ expectations and demands from your product before you decide on how to price your products.