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So you have an outstanding business plan that extends to a marketing plan. The next step is to put a price tag your products and/or services. If you’re going off the standard market price and make it too high, chances are your brand won’t sell. Do it otherwise then yes, you’ll be swamped with orders but there will only a very small profit of margin. You might not even be paying yourself right. It is important that you strike a balance between too high and too low pricing in order to make sure you are building a great business.

So what goes into a price?

Well, you have the costs of production (or your skills if you’re offering services), the value you provide, competition and of course, a reasonable profit. In reality, there is no perfect price because it really depends on an understanding of your value and how much your customers are willing to pay for that value. You have to come up with a price that gives you profit because you will use that as basis for sales projections, calculation of profit and the establishment of a break-even point.

If you still don’t know where to start, here are some tips to help you put a price on your offerings:

Check out your competition

You will get an idea on pricing based on your competition. Use your competitor’s price as a reference point and then if you’re offering better products or services (maybe an upgrade) then you can charge a slightly elevated price. That can be justified. But if the case is otherwise, then you must reduce your price a bit.

How much is the total cost of the product?

You must include the production cost (including the labor, packaging, materials/inventory and shipping). There should also be a percentage of your overhead expenses like administrative costs, legal, accounting, and marketing and so on. After which, calculate the profit margin and that should be anywhere between 30 and 300 percent.

The profit margin will depend on who you’re selling to. If it’s wholesale, you might have to double the labor and material cost. For retail, double the amount you’re charging for wholesale.

Perceived value vs. actual value

It’s about mind conditioning so your customers would think that your brand is more valuable than that of your competitors. For this to happen, you have to invest in a professional to study the psychology of your target market so that you can target in very strong marketing techniques.

So basically: (labor + materials) x profit margin = price

Further below are some of the no-no’s when it comes to the topic of pricing.

First, never compete for the lowest price because that’s never going to take you anywhere. Remember, people pay based on perceived value. If you value your products/services too low, they would never get to trust your brand or equate it with quality. This takes us to the second no-no, which is to never be afraid to charge premium because if your brand is really good, people will be absolutely willing to pay what you charge.

Third, don’t be afraid to offer discounts. There are many kinds of discounts that you can offer without affecting your brand’s image. In fact, you might even be boosting your image if you offer down-the-road discounts. It’s always easier to start with a high price and then just come down using discounts than the other way around. If you look at how people think, you will find that offering discounts periodically will be a far better marketing technique than reducing your prices across the board.

Lastly, pay attention to how your target market responds to your pricing. You can add more value later on by adding freebies or discounts.

About the Author

“Murray Priestley has 25 years of commercial and asset management experience having served in board, CEO and senior executive positions with a number of global public and private companies.”