When you start in business or launch a brand new product, one of the most important steps is coming up with prices. Price it wrong and you could end up with either no sales and unhappy customers or a profit loss for you.

Lots of people undervalue their services, particularly if they’re new to the business world. The problem is that this can halt your growth and lead to an unsustainable business model.

How to be competitive in the market

It’s hard when hundreds of other companies are offering the same as you. You could compete on price, but this limits your profit margin and also sets a precedent.

Another way to compete is to make sure you’re offering something different. If you can spin an angle on your product and market it well, it will stand out.

How to calculate the selling price of a product

To make a profit, you need to be selling it for more than it cost to make. This is your profit margin – the bit where you make your money.

Make sure you consider all manufacturing, material and shipping costs when pricing up your products. What are you spending on getting this product to your customer?

Next, you’ll need to add a markup to it to make a profit. But what is a good profit margin for selling a product? Unfortunately, this won’t have a simple answer, but will depend on your profit needs and the value to the customer.

Cost of materials + Labour cost + Shipping/other costs + Markup = Final Price

How do you convince the customer that the price is right?

The customer needs to believe that no matter what price the product is, that it’s worth it. This means the price needs to be reasonable and competitive or the benefits outweigh the costs.

A solid marketing plan is key to whichever option you choose. Identifying your target market and understanding it is half the battle. This will help you better understand the value your product can provide the customer, which can help you price it accordingly.

How much is it worth to the customer?

Pricing your products isn’t just about a physical cost of production. You need to consider how valuable this product will be to the customer when adding a markup to the price.

How will this product improve the customer’s life? Will it save time, stress, provide enjoyment or have a practical use?

For example, if you’re selling a coffee machine with a timer function, you’re not just selling a way to make coffee. You’re selling a time-saving device which will inspire you to get up early in the morning and reduce decision fatigue when you’re half asleep. It will boost productivity and mood in the morning, not just make coffee.

If you’re selling an electric mixer, you’re not just selling a tool, you’re selling pain relief and a hassle-free alternative to manually mixing ingredients in the kitchen all day.

There, you’ve turned a simple product into a whole story and made it more relatable and highlighted its true value.

When you’ve considered the cost of production and the worth to the customer, you will come to a price that works. However, it’s always worth revisiting your costs as time goes on. There will be changes in the cost of production, marketing and within your customer base too.

The rest of the work is convincing them that it’s your product that will save the day and address their needs. Marketing is key to selling this message to your customers.

What else do you consider when pricing your products? Let us know in the comments.