The price of your product or service is an essential piece of your business. If the price piece doesn’t fit into your puzzle – and the wider marketplace – it can have a detrimental impact on the success of your business, writes Nick Barnsdall, Co-founder Navig8Biz.
So, how do you determine the value of your product or service so you can confidently forge ahead without second-guessing your value?
Here are six simple steps to help you substantiate your price points,
1. Discover your breakeven point
To determine the cost price of your product, before you can add a margin, break down all the inclusions that it takes to make your product a reality. These could be marketing, sales, staffing, overheads, and any other time that is spent on actualising your product. Once you’ve established a breakeven point, ensure that you create enough margin above that to inject funds back into the business.
2. Undergo a competitor analysis
While doing the numbers to determine your breakeven point is important, there is a more crucial element at play. What will people pay? To understand that, analyse the market. Find your three closest competitors, grab a pen and paper and jot down their price points, as well as the value they are bringing. During this process, you’ll unearth valuable insight into your and their competitive edge. As a result you’ll be far better placed to price and potentially improve your product and offering.
3. Determine the size of the problem
It’s important to consider the size of the problem that you are solving for your customers. If the problem and solution are both wildly important for your audience, your price will naturally be higher.
4. Branding will set you apart
Branding is another key ingredient when determining your value. Ultimately, people want to feel good. So, the better you can make your customer feel, the more they will want to spend on your products or service. How do you make people feel before, during and after a purchase?
5. Gain feedback from your existing database
Create a focus group, ask your social media audience using a poll, or send out a survey to your email database. One of the best ways to learn the price that people will pay for your product is simply to ask them.
Finally, don’t be afraid to experiment with pricing. Strategising and re-evaluating your price points over the lifetime of your business is as important 20 years down the road as it is for startups. Tweak and test as you go along your business journey.
Lastly, there are a couple of ways to view your selling price. You either use the Cost Price Up method or Sell Price Down.
All too often, businesses will look at ‘cost price up’ only. In other words, they buy for X, add a margin and sell for Y, which puts all the pressure on the sell side of the transaction. But in many instances, particularly in high-volume products, a sell-price-down approach is more effective. To do this, do your market research to discover the market position. What will the market pay for your product? Then create a margin by putting more pressure on the efficiencies in your business to lower your cost price from your supplier. Create the margin you need but not at the expense of losing customers. If you want to create a ‘super margin’ you can do both – push up and squeeze down.
Following these steps to pricing your product will place you in the market and ensure your business starts out on the right foot this year.
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