How Should You Price Your Product?
It is a big question—how you price your product as you take it to market? Not only does it drive your revenue number but also the profits you can take out of it at the back end. So, what is your pricing strategy? There are three typical ways that people go about pricing things:
1. Cost plus—some businesses take the cost of their product, add a mark up and take their products to market.
2. Competitive analysis (also known as “me too”) -- some business owners will look at what their competitors are charging and base their prices on that number, either a little higher or a little lower. This one gets me interested because whenever I ask how they compare to their competitors, everyone says they are about average; then I chime in with, “So, are you just running an average business?” Their response,” No, we’re much better than the rest.” So let’s charge for being better.
3. Value—some businesses base their pricing on what the marketplace is willing to pay. A great example of this is ink and toner cartridges for home printers. They cost around a dollar or two to make and they sell them for $35-$50 because the market is willing to pay it. Pretty good deal.
The key on pricing your product is that you need to make money. You need to look at your fixed costs, add in salary for yourself, and make sure you cover the variable costs for your products.
Some tips to pricing:
1. It is always beneficial to understand what your competitors are doing—market research is important.
2. It is always beneficial to understand your cost structure and to strive to reduce costs as much as possible while maintaining or improving quality.
3. If you can’t make money, there is no reason to carry the product (unless it is an intentional loss leader).
And, if you haven’t raised your prices in a while, now is the time. Don’t just raise everything a flat amount or all at once; this is lazy. Do the research, start with the things that have the least profit margin and move toward the items that you sell the most of. Whatever the case, just know the market will always bear a 3-5 percent increase so long as your service and delivery are up to snuff.
Action Tip of the Day--Rewards
OK, so we’ve just wrapped up the last quarter of 2013 and you have accomplished what you set to accomplish. What will be your reward?
Often times, business owners will lament over the disappointments they experience but not celebrate the successes. That’s just plain crazy. When you hit a goal, celebrate. Put together a plan of rewards based on accomplishing your goals. Here’s the benefit:
· When you have small wins, have small rewards.
· As your wins get larger, your rewards should get larger. This is what keeps you pushing through the rough waters.
So, today is a great day to decide what your reward will be both for small accomplishments and large ones. It will keep your motivation high.
Take Action on this today and then go run a lap! Business is fun!