One of the toughest things for business owners to figure out is how to price their products in an effective way. There are so many different ways to price a product that it can leave business owners with a headache.
Today, I want to give you my top three choices as far as how to price your products. I want to preface this by saying the main goal is always to make sure you not only turn a profit, but have enough to scale and grow your business. With that being said, let’s talk about them!
“Cost Plus” Pricing
The first and probably most popular way of pricing products for business owners is what’s know as “cost plus” pricing. This basic model says to tally up the total costs for creating your product, then adding an additional amount onto this.
The main thing to remember with this type of pricing is not the cost, because that is easy to figure out on your own, but rather, to make sure you really think about how much you add on AFTER the initial cost.
Adding too little, and you won’t be able to grow your business, launch more products, and sustain your business. Add too much, and you won’t be on par with your industry, and people will look to other products because yours is deemed as “too expensive.”
The two things to do with this pricing is first figure out the total costs you incur for a product, including things like packaging and shipping. Then really take some time to figure out exactly how much you need to be adding on to make sure your business turns a healthy profit.
“Competitive” Pricing
If you’re unsure of how much to mark up your products like in the previous example, then a good way to get around this is to price your products according to the “competitive” pricing model. This makes pricing your products pretty simple to figure out, all you have to do is take a look at your biggest competitors.
The best way to go about this is to look at as many of your top competitors as you can, find what they charge for a similar product you sell, divide them all up, and you’ll get a ballpark idea of what you should be charging for your product.
If you’re newer to the market, you might want to charge less than that. If your product is of superior quality, you might want to charge a little more than the average. The point is that it gives you some sort of reference as to what someone would “typically” charge for a product lik,e yours.
“Mark-Up” Pricing
The third way you can price your products is to simply mark them up a percentage after you figure out the total cost that goes into the product. A lot like the first example, the first thing you want to do is to figure out the total costs that go into creating/packaging/shipping the product.
After you’ve figured that out, then you simply mark the product up a certain percentage. There is something known as “keystone” mark-up, where you simply mark your product up 50%. This is industry standard, but that doesn’t mean that it’s necessarily right for you and your business.
Again, like the first example, the main thing to figure out is how much do you need to make in order to do things like expand your business, order more product, market your products effectively, etc. If you’re not sure where to start, typically, businesses will mark up their products anywhere from 20-80% depending on the product and their profit margins.
Conclusion
When it comes to pricing, the two main things you always want to remember are: what are the total costs it took me to create this product? Second, how much of a profit do I need to turn in order to be able to sustain and grow my business?
If you always make sure you’re thinking about the answers to those two questions, then pricing will become a lot easier for your products and your business overall. If you have any questions or need help figuring out the pricing for your products and services, feel free to reach out to me HERE and schedule a free call where we can talk more about it!