In order to stay profitable and remain in business, it is vital to know how to properly price a product or service. Read about the factors that businesses should be considering when they set a price.
Costs: Many businesses think that pricing their product at a discount will bring in more customers and ultimately cover the loss of profit. This, however, is usually not the case. Under-pricing is one of the biggest mistakes a business can make. If a price is cut too steeply, consumers may not think the product is of high quality, and turn to a more expensive version. It is important for business owners to price properly so that consumers feel they are getting the best value for their money, while also covering the costs to make, ship, and store the product and turning a profit.
Customers: Knowing your customers and what their price points are will better allow you to price your products. Over-pricing a product can do as much damage to a business as under-pricing a product. Business owners must be mindful over-pricing because if the price is above a consumers buying point, they may gloss over the product and find a cheaper version. Examining the business side of a price and the consumer side of a price will allow business owners to price fairly while also generating a profit from a sale.
Competition: Another key metric in properly pricing items is knowing who else is in the market. Take into consideration other businesses that offer the same product or service, and what their price points are set at. Also consider the time, effort, and resources they use to make their product or service. This information will help in an effort to better understand how they came up with their price and get a feel for consumer price points and the overall market.
Market: Knowing where your businesses’ market is heading can benefit your ability to properly price your product or service. While it is impossible to foresee the future, you can take into consideration factors like inflation, the economy, and supply and demand, which can all affect your business. Considering these factors allows business owners to predict how the market will fluctuate, and in turn adjust their prices as necessary.
When pricing a product, businesses should consider these factors in order to generate a price that is fair for the customer and beneficial to the business.