Knowing how much to charge for a product or service is going to be a make or break decision for a successful business. Price too low, and you will probably receive a ton of business but won't make ends meet, but price too high, and it will push customers away.
There are exceptions of course where low prices are the selling point or in the case of luxury products, high prices. You ultimately have to decide what is right for you but here are some tips to help you get started.
This is perhaps the most crucial. You have to understand both your target consumer and also your competitors. If your customer will pay a premium for your service, then it might be worth pricing to accommodate that or maybe your service is superior to your competitors so you can charge more for the quality. Undercutting your competitors is another option but volume becomes more and more important the lower your margins get.
Having well organized, structured accounting is absolutely essential. You need to be tallying up all of the costs related to your product or service including both direct and indirect costs. It is also crucial to plan for future expenses. If you need to buy some sort of equipment in the near future, make sure your budget is aware of this, you don't want to have a particularly expensive quarter and not have the finances to justify it. Figure out the minimum to break even on your costs and then determine your prices to meet your costs.
Costs are not the end all determinate in your pricing structure. Some products are simply worth more than they cost to produce simply because of demand and the cultural value assigned. If you are aware of this opportunity, take advantage of it as you can significantly increase your margins. You have to be cautious though as market value can fluctuate as new products enter the market or a product becomes less important to consumers
While choosing prices is ultimately a complex process, if you do your homework and truly evaluate the worth of your product or service, you can find the right number to meet the market. Don't forget to continue evaluating the market as prices can change quickly and often, and you have to be aware.
For help on getting your pricing online, contact us to get started.