Price matters. Coming up with the right price for your product could be the difference between success and failure, depending on how smart you are about your pricing decisions. You have to be acutely aware of what's fair and reasonable and how much your customers are willing to pay for your product.
Start by mapping out your production costs. This should include all of the fixed and variable costs to providing your product. Expenses like rent, salaries, property taxes and anything else that doesn't change are considered fixed costs. Variable costs, like hourly wages and sales commissions, can change depending on the number of products you produce or sell. You have to consider everything, including all overhead costs. Once you know exactly how much it's costing you to provide your product, divide it by the number of products you expect to sell. That's how much you need to sell each product for in order to break even. Example: If it costs you $10,000 to provide your product, and you expect to sell 5,000 of them, then they will each need to cost at least $2. The markup is where things get a little tricky, but here are some key considerations to keep in mind.
Consider the clientele you're trying to attract.
If your goal is to attract anyone and everyone, then you're on the wrong track. You need to figure out if your product is best suited to be sold as an upscale product, a standard product or a discount product.
Understand the market, and know what your competitors are doing.
Find out how much customers are paying for your competitors' products. Jot down the price range, from cheapest to most expensive, and try not to stray from within those numbers. Anything above or below will come as a shock to most customers.
Focus on value.
Figure out what the real value of your product is. Does it help your customers in some way that other products can't? Is the design more appealing, and does it make the product easier to use? Don't sell yourself short here. Many companies try to undersell the competition. They simply offer the lowest price and assume that that's what all customers are looking for, but if the value of your product really does exceed that of your competitors, then don't be afraid to charge a little more. Customers are willing to shell out the extra money, so long as the value of the product meets their expectations.
Be honest with yourself about your product.
This one can be tough. People become really attached to their products and believe that they soar above and beyond anything else like them, but rarely is that the case. That doesn't mean that you don't have a unique or better product though. Take a long, honest look at other products. Consider features, design, durability, etc. How does your product compare? Is it really that different or that much better?
Don't try to price your way into profitability.
When the market is down or sales are stagnant or falling, don't automatically jack up your prices to make up for lost revenue. Why? First of all, customers will not be pleased with the sudden change. Second of all, if the market is down and people are pinching pennies all over the place, increasing the price of your product will only exacerbate the problem. Instead, keep close tabs on your costs and your cash flow. By cutting costs to make ends meet instead of increasing prices, you'll still be able to get by and your customers will be appreciative of your efforts through the hard times and again once business improves.
