The price of your products will play an important role in how well it sells. You'll need to consider who your target consumer is, how much your competitors are charging and which price will show that your product is the best value. There is a distinct trade off between quality and price. When something is too good to be true, it usually is.
Say you have a widget that is worth $100.00. If you were to sell it for $1.00, it would be a fantastic deal. Your shoppers would think that it was cheap and shop elsewhere. This is why you need to price your products accordingly and in order to do that, you'll have to do your homework:
- Know your target consumer. What is their age range? How much will they be willing to spend?
- Who is your competition? How much are they charging?
- Is your product a budget item, luxury item, or something that everyone will "Just have to own".
- How is your product, or company, different from the competition? If all things were equal, why would someone buy the product from your store?
A high price tag comes with some assumed addons such as world class customer service, elegance and exclusivity. Your prices need to reflect the type of consumer you will be marketing too. If you charge too much, you risk having them walk away, if you charge too little, you risk them walking away.
After you've done some homework, look at your costs:
- How much does your product cost?
- How high of a markup will you have to use in order to turn a profit? This not only includes the price of your product but your overhead, shipping, credit card fees, and hosting fees.
If you sell a product that costs you $3.75 at 12.00 and sold 300 of those items, you would receive a revenue of $2475.00.
If you were to lower the price and make it more attractive to customers at $8.00 per unit you would need sell approximately 600 units, in order to get the same revenue as you would at the $12.00 price point. This means you will need to sell twice as many units and also:
- Deal with twice as many customers
- Have twice as many outgoing shipments and this DOUBLES your shipping costs.
- Pay double the merchant fees that you would have had on 300 units.
As you can see, by keeping it at $12.00, you are maximizing the sale.
Pick the price that helps you meet your objectives.
Here are a few pricing strategies to help you think about how you want to handle your own pricing.
A. Margin pricing
Take the basic cost of the product and multiply it by a set percentage that covers your overhead costs and the profit you wish to make. For example, if you buy your product for $5 and your fixed and variable costs run $1 per item and you want to make $1 on every item you sell, you would need to sell your product for at least $7 to make the profit margin you wished. Of course, this does not include any of the more nuanced considerations like what your competitors are charging, but it does give you a starting price point.
B. Premium pricing
When you have a unique product, high customer demand and few competitors, you can put a high price tag on your product. Basically, you can price your product as high as your target consumer would be willing to pay.
C. Economy pricing
Economy pricing is putting a low price on your product to get the maximum amount of sales. Economy pricing is usually utilized when there are many competitors and your consumer is very price-conscious.
D. Penetration pricing
This strategy involves giving your product a low price when you introduce it to gain market share and then raising the price when you get more customers.
E. Bundling and add-on pricing
This pricing strategy takes advantage of products that sell together. For example, the customer can buy one of the products in a line at a certain price and then buy other complementary products for a small discount with each add-on. Or you can sell add-ons (i.e. warranties, services, etc.) that complement one of your products.
F. Psychological pricing
This is a strategy that uses a price to signal quality, fairness or another intangible product quality. For example, pricing your product higher than a competitor's product may signal that it is of better quality.
G. Price discounts
There are many types of price discounts, including:
The more a customer purchases, the bigger the discount.
Lower rates depending on the season, time of day, etc.
This is a short-term discount designed to increase sales.