How to Find the Right Price of Your Products and Services?

You have launched a new product or service. Your product is based on quality, offering so many innovative features. You expect it to make a lot of sales, but before that, there is one big concern. How are you going to price your product or service?

Finding the right price of any product or service is a huge challenge, and can contribute significantly to the success or failure of your business. You can decide the right price only when you know your target audience well and have an idea of the amounts they will be willing to pay. What about your competitors? You have to stay ahead of them, which is why you should also consider their pricing.

Your company may have been established for a long time, but you should still take a look at the trends and consider the average, lowest and highest prices in the market. We decided to make things easy for you. Over here, we have presented some advice. Act on it, and you will have difficulties when it comes to deciding a price.

Find out what your target audience will be willing to pay

So your product is costing you about $1. Now most of you will want to earn 50% profits on it, because of which they will sell the product at $2. This technique is referred to as cost-plus pricing. Though practiced by many business owners, it does not always work and may result in a not-so-right price for your product.

Before you decide any product, you should consider the amount your customer will agree to pay for it. So for instance, if your product is costing $10, you may want to sell it at $20. But your customers will have no issues in paying as much as $100 for the very same product. Now selling it at $20 is far from smart because you can earn so much profit on it.

Let’s look at the picture now from a different perspective. Your product costs $10 to make, and your customers will also not pay anything more than $10. Should you continue to sell the product? If you want to make profits, the answer is no. In such a case, you should decrease your operational costs before you sell the product, but you cannot price it higher than $10.

So how will you know what your customer can pay? Conduct surveys and polls to find out.

Consider Your Target Audience

Your target audience values your products and will pay you a huge price for it. On a per unit basis, you will be earning more profits, but what about the overall scenario? The problem is that your market size is limited which will affect your total revenues. Let’s consider another case now. You are targeting a huge market which is not so eager to pay you a high price. Thus, your sales are more, but per unit, you are not earning so much.

What do you do now? Go with the latter option or the former one? None. The best thing is to divide your market in different segments, and accordingly offer a price. We’ll talk more about this later.

Analyze Your Competitor’s Pricing

There are three primary concerns when you study the prices offered by your competitors.

§  Who are your competitors?

§  Is their product better or yours?

§  Does the customer give importance to quality?

If you have a better product than your competitors, price it higher than them. If their product is better, price yours at a lower rate. What if your competitors decide to change the price? Adjust your pricing accordingly.

Now here is the thing: this strategy is applicable only when your target audience is familiar with average prices. If they are not, you can charge higher than your competitors even if their product may be better than yours, and it might just work out for you, it all depends on the awareness and your promotional tactics.

What if you divide your products and services into levels and have a different price for each of them?

This can actually be effective. You should give your customer choices, which should be at least around three. So for instance, you could have a basic product, then an upgraded model and then a premium product.

Let’s look at a real life example. When Apple first introduced their laptops, they came out with three different models featuring 16 GB, 32 GB, and 64 GB. Had they only launched one of these models, they would not have been able to make any sales for one segment of the targeted audience. So offer choices with each of them targeting a different market segment.

Try to adjust your price

If you adjust your pricing according to specific consumers, you can improve your profit margins by around 1% to 7%. Every customer is different and will agree to pay a different amount. Even if there is just one customer, they may not always pay you the same amount depending on the occasion. So adjust your prices whenever there is any such need.

As an example, if there is a shortage of a certain product in the market, people will want to pay you more than the average price. Thus, you can use the situation to your advantage.

Explain your customers the reason behind your higher prices

Okay, you are charging more than the market averages. But does your customer know why? Explain it to them. They should understand the price difference and then value it.

The price difference can either be real or perceived. In an ideal situation, you create real differentiation in pricing and then communicate the same to your customers, making it perceived as well. Real differentiation can be achieved by quality control measures and perceived differentiation is achieved by the effectiveness of your marketing campaigns.

Use our advice to price your products and services, and you will enjoy more profits.