Pricing your products can be a tricky decision, but it’s the one thing that has the biggest impact on your business, therefore making it very important. Setting your pricing, then affects cash flow, profit margins, and the expenses you can afford to cover.
It’s a balancing act when it comes to pricing, as too low isn’t always the best option as you might not turn over any profit. It can also lower the perceived quality of your product in the eyes of some consumers. On the other hand, too high pricing can see fewer sales and lose your marketing position, which can also result in less profit made. So, it’s all about getting the balance right when it comes to deciding the prices and making sure they are making you a profit at the same time. This is where you can use some product pricing strategies to help you out and make sure they’re set to the right price, for your business and products.
By using some product pricing strategies, it can help you out with deciding and also save time and money in the long run. You’re best to make sure you do this when first setting up your business and pricing, to ensure it works.
Types Of Product Pricing Strategies
Here are some of the many different product pricing strategies you can use, to help price your products. These are just a few of them, but there are lots of different ways and strategies that can be used and tested, to see which works best for setting your prices. It’s not guaranteed that every strategy will work for your specific business and product, but it’s worth having a read and trying some of them out. This will help to determine which works best for you and help you to set the prices.
Retail Price
The retail price strategy is a formula to help work out what the price should be set at. In some cases, you will want to mark the products either higher or lower due to several factors.
The formula below for retail pricing is fairly simple and straightforward, however, it’s not guaranteed to work for every product in the retail business. The formula to calculate your retail price is:
Retail price= [cost of item ÷ (100-markup percentage)] x 100
Keystone Pricing
This product pricing strategy is something many businesses use as a rule of thumb. To break it down, it’s when a retailer determines a retail price by doubling the wholesale cost they paid for the product. However, this does mean that it can be priced either too high or too low.
If some products have quite a slow turnover and heavy costs that come with them, including shipping, then this is where you may end up not making enough money from the product. However, in this case, you could instead use a higher markup percentage to increase the overall retail price.
The benefit of using the keystone product pricing strategy is that it’s a quick and easy rule that always ensures an ample profit margin. The downside to the strategy is that it can sometimes leave the price as being too low or too high, depending on how much depend it is in.
Manufacturer Suggested Retail Price
This is where simply; the manufacturer of the product will suggest the retail price for selling the product. This was first introduced to help standardize the different prices of products, across locations and retailers. The benefit of this strategy is that it saves time for the business, as you can just follow what the manufacturer of the product suggests instead. The downside to this is that when using this strategy, retailers can’t compete on price.
Multiple Pricing
The multiple pricing strategies are a very common one, which we’ve all probably seen before when buying products ourselves. It’s where retailers sell more than one product for a single price, which can also be known as product-bundle pricing. A common example of this would be a pack of multiple socks, all sold together for one price.
The benefit to this is that it gives people a higher perceived value for a lower cost, which can lead to larger volume purchases. You can also sell the products individually for more profit, so you can make money either way. A lot of people are drawn to multiple pricing offers, as they often think they’re getting themselves a bargain. However, one key thing to remember is that if the bundles aren’t increasing sales volumes, then this can cause a short on profits.
These are just a few of the product pricing strategies that can be used, but there are lots of ways and techniques you can try out, for your own business and products.
How To Price Your Product
Along with the above strategies you can try out, there’s also a basic setup you need for pricing your products. This includes adding up the variable costs per product, adding a profit margin, and remembering any fixed costs.
Firstly, add up the variable costs of the product, so you know how much it’s costing you per product. Some of the costs that might contribute towards each product include the cost of goods sold, production time, packaging, promotional materials, shipping, affiliate commissions. You need to make sure you’re adding everything up, to get the total cost per product.
Then you can add your profit margin. This is where you add on your profit, to the total price it costs you for each product. It’s setting yourself a target price, for how much you’re wanting to make from each product.
Finally, don’t forget about any fixed costs. These are expenses that you must pay, no matter what and therefore fixed. These will add on to how much you’re spending per product and therefore, affect how much you make from it.
This is a very basic breakdown of how you can price your product, however, it is recommended to try out the product pricing strategies, to find which works best for you and how you can make the most money from your products.
Test Your Pricing Strategy Out
The best thing to do is test out the different strategies and pricing models. Every business and product is different and a lot of it depends on how much the product costs to make, how well it sells and how much profit you make. Have a look into the different types of product pricing strategies, to see which may work best for your product and to also help you work out what you should be selling your products for, along with some of the best techniques, to draw more people in.
Keep testing and making adjustments on your product pricing based on sales, data, and customer responses.
