February 28, 2021
Written by Eben Chidike
Read Time 4 Minutes

The ultimate guide to pricing

Branding articles, how to build a brand, building a brand, starting a brand.

Discover the best way to price your product and service

If you ask for people to pay too much for your product or service and then they will stop buying., however ask too little and your profit margin slides or customers assume your product is poor quality.

One of the key parts of having a successful business is pricing your product properly.

Pricing your products correctly can enhance how much you sell, also creating the foundation for a business that will prosper.

If your pricing strategy is wrong then you may create problems that your business will never be able to overcome.

Pricing your product usually involves the following three key factors, finding your target audience, comparing how much competitors charge, and understanding the relationship between quality and price.

The bad news is there's no set formula-based approach that suits all types of products, businesses, or markets.

However, the good news is you have a great deal of flexibility when setting your prices.

Know the market

You need to find out how much customers pay for your product, compare it with your competitors and see how much they charge.

In reality you have two valid options, you can match them or beat them.

Simply matching a price is very dangerous, as you need to makes sure both your costs, both indirect and direct, are covered.

Choose the best pricing technique

Cost plus pricing is where you add a mark-up percentage to your costs giving you your final price; this varies between products, businesses and sectors.

Another very good pricing technique is value-based pricing which is determined by how much value your customers attach to your product.

Make sure which pricing strategy is best for your products and stick with it as it will keep your prices on all products consistent.

Work out your costs

When working out costs make sure to include absolutely everything. The different things your product need to cover are direct costs, variable costs, and fixed costs.

Direct costs include money spent developing the product or service.

Variable costs are everything spent on supplies and materials, packaging and so on. The more you make or sell, the higher these will be.

Fixed costs are overheads such as rent, rates and wages, usually a percentage is taken from each sale to cover this.

Add all of these costs together and divide by the volume of product to get the figure where you break even.

Setting up cost-plus pricing

to setup cost-plus pricing you need to add a margin or mark-up to your break-even point.

This is usually a percentage of the break-even figure.

Financial statements, past experience, or market knowledge will help you decide the level of mark-up you should apply.

If the price looks way too high, you'll need to trim your costs and reduce the price accordingly.

Be aware of the limitations of cost-plus pricing, because it works on the assumption you will sell every unit. If you don't, your profit will then be lower.

Set a value-based price

You'll need to know your market very well to set a value-based price. For example, the cost to produce a frying pan and bring it to market might be £25.

But you might be able to charge customers £50 if it is similar, or ideally, below your customers prices.

When setting up value-based price you need to be completely honest with your self about the value of your product.

It may be hard to admit to yourself that some of your competitors product is better, however it is crucial when using value-based pricing that you do this.

Think about other factors

When pricing a product make sure you keep VAT in mind as it may be the difference from you pricing your product correctly, and making no profit at all.

You should also provide different payment plans, a very common one these days is monthly or weekly instalments chopping down the price into a few smaller chunks making it feel like a smaller fee.

Stay on your toes

Prices can't stay the same for too long.

Your costs, customers and competitors will change, therefore you will have to change your prices also to keep up with the market.

Keep an eye on what's going on within the market and communicate with your customers regularly to make sure your prices remain the best they can be.


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