How To Choose An Ideal Price For Your Product
Would you like to know how to choose an ideal price for your products? This post provides you with five important tips to help you out.
The price of a product determines whether or not the customer segment would make demands for them. It also determines its classification as a luxury good or one for the middle class. Entrepreneurs consider several factors when determining the price of a product or service. Note that the prices of your products can determine your market share.
Choosing an Ideal Price for your Product
Below are some factors that help you to determine the ideal price for your product or service.
The Price of Your Competition
Your competition comprises those in the same niche as your brand. They have been in the market and established a name, growing brand, and network. In some cases, they are startups like you. Also, they could already have a differentiating factor to make customers. Such a factor could make them rethink whether or not they consider switching to a different product.
You should consider your price range falling into what is affordable for both the existing and new products. This makes room for flexibility to accommodate the needed change when it arises. Note that you don’t have to copy what the competition is doing. Instead, watch the changes that the competition makes to their prices. Such changes can give a signal of not just holding the market share but also establishing new connections.
Your Suppliers or Service Providers
The supply chain is a key factor in the delivery of a superb product or service and determining an ideal price. Some organizations have created synergy with suppliers that make raw materials available all year round. Such synergy helps achieve consistency at stable prices. Unfortunately, this would not always be the case as prices could change, transportation costs could increase, or there could be losses due to theft. A selection of suppliers with quality service, integrity, and proximity to raw materials is the best bet that can make the product or service delivered at a reasonable price.
Packaging of Your Product
Most products come with extra materials that make the exterior attractive to the customer. Such extra materials take a percentage of the selling price resulting in higher prices than normal.
Green packaging is gradually becoming more popular in this part of the world. Adopting a material that doesn’t pose environmental hazards while being cheap and easily disposable is perfect for any company. Doing this would influence the pricing of your products.
Energy needs
Most businesses depend on the power grid for their energy needs. This is a recurring expense that you must consider when developing your budget. Every company must make provisions to avoid power supply interruptions. Not doing this would affect the day-to-day operations of your business.
Asides from the power grid, you should consider the cost of switching to alternative power supply sources during outages. This factor is vital in determining an ideal price for your product or service.
Cost of Goods
The cost incurred in making a product is referred to as the “cost of goods.” It involves the expense of procuring raw materials, wages for labor, processing, packaging, and energy needs. This cost excludes transportation and distribution.
Profit on any product or service can only be determined with accuracy when you know the COGS (Cost of Goods Sold). This knowledge increases your chances of making accurate sales forecasts. With this, you know how many units of goods you produce and how many you sell. It also informs you on how much to record as revenue.
Emmanuel Otori has over 9 years of experience working with 100 start-ups and SMEs across Nigeria. He has worked on the Growth and Employment (GEM) Project of the World Bank, GiZ, and Consulted for businesses at the Abuja Enterprise Agency, Novustack, Splitspot, and NITDA.
He is the Chief Executive Officer at Abuja Data School.
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