It’s no secret that if you price too high, then your customers will not purchase your items. However, if you aren’t pricing high enough, then your profit margin will be low while your items may look like they are of poor quality in the eyes of your shoppers. Therefore, you want to try to find the optimum price, which takes into consideration your costs that way you can make the most margins possible while, at the same time, will encourage buyers to make the purchase. Keep reading to learn the best way to price your items.
Understand the Market
Begin by figuring out the amount that your shoppers are willing to pay as well as the prices that your rivals are currently selling similar items at. A dependable way to figure this out is with the help of a price analytics software. From there, it is up to you to figure out if you would like to keep the same prices or to strive to offer better ones. Keep in mind, though, that if you choose the former strategy, ensure that you can still pay off your direct and your indirect costs.
Figure Out Your Costs
You want to make sure that you are taking into consideration all of your costs beginning with all of your direct ones including everything that you spent in order to develop either the item or service. Afterwards, figure out how much your variable cost is by taking the sum of everything including materials and packaging supplies such as ldpe sheets, to name a few. Keep in mind that the more items that you either create or sell, the greater your variable costs will be. Then, you will want to figure out the percentage of the fixed costs that your item needs to be able to cover, including things such as rent and wages, for example. Finally, sum up all of the costs and then divide that total by the volume so that you can figure out what the unit break-even point is.
Figure out the Best Pricing Strategy for You
When it comes to cost-plus pricing, you have to make sure that you include markup percentage costs, which will depend on the item, business, or industry that you are in. Value-based pricing, on the other hand, revolves around figuring out the amount of value that your buyers believe your item to have. Therefore, before making any calculations, figure out what your pricing strategy is.
Take into Consideration Cost-Plus Pricing
In this case, you will have to include either a margin or markup towards your break-even point, which is then depicted as a percentage of break-even. You will be able to figure out the level of markup based on either experience or your knowledge on the market. In addition, if a price seems as if it is too great, reduce your costs as well as your price. Keep in mind, though, that cost-plus pricing works well with the intention that you will be selling everything that you make. If that’s not the case, then you won’t be making as great of a profit.
Establish a Value-Based Price
In order to establish a value-based price, understanding your market is key. For instance, while a hairdryer may only cost you $10 to sell, based on the market value, you could charge customers upward $25.
Your prices can’t stay the same for long periods of time since, after all, your shoppers, costs, and even rivals will be changing. Therefore, it’s up to you to alter your prices to ensure that you remain relative in the market. It’s important that you remain alert about everything that’s happening as well as communicate often with your shoppers to ensure that you are offering the most optimal prices. You should invest in a POS system (get more details) to have smooth payments and transactions.
Look at Other Elements
You might want to take into consideration things such as how charging VAT would influence the price or whether you can have low margins on some items so that you can get higher-margin sales from other items. It might also be important to figure out what your prices are based on location, markets, or even online sales. In addition, you may also consider using a pricing software to price your items right.