How to Price your Products - The Dark Art

Pricing your product correctly is part art and part science. If your prices are too high then your customers will not buy from you, but if you price too low then you may not make a profit, or your customers will perceive your product as being inferior. So, the key is to get the pricing sweet spot so you can maximise your profit margins and still remain attractive to your customers. Before we jump into this, you must remember that your prices do not have to be set in stone as you should adjust them as and when it is required. It is a good idea to revisit your pricing strategy regularly as you want to avoid leaving money on the table. To determine your price point, you need to first know your customer as this will guide you as to what they are prepared to pay for your product. A good way to start is to see what your competition is charging and then compare their product to yours. Depending on the quality or competitive advantage of your product, you have three option. To price your product higher, lower or the same as your competition. Whether you increase or decrease your price you should always ask the two questions; namely 1. How will this affect the sales volume? and 2. What will this do to the profit margin? If you choose the higher option your profit margin increases but your sales volume might decrease, by doing this you will also place your product in the premium segment. This strategy is called a value based strategy and will only work if your customers belief they are getting the extra value. For example; Let’s say you have a leaking pipe in your house and you call a plumber to repair it. The cost for the plumber may be R400 which will include his travel, his time and his materials. His price that he charges may be R1,000 but the value you place on the repair may be R2,000. As Warren Buffet so nicely puts it "Price is what you pay. Value is what you get." The “perceived value” of your product is influenced by your product positioning which in turn is influenced by advertising, after sales service or sales techniques. Another way to increase your prices is to bundle your product with a value add such as free shipping or another product. If you price your product lower than your competition you could take some of their market share, and effective sell more volume but at a lower profit margin. This strategy is often used for promotions, but the problem with this method is that it is essentially a race to the bottom. I would not recommend pricing your product the same as your competition as then there is no differentiating price factor. Pricing alone does not drive sales it is your ability to sell the value of your bran and that is explained by the difference between a R500,000 Rolex and a R5,000 Seiko watch when both are just as accurate in keeping time. There is also the psychological aspect to pricing and that is by ending the pricing with odd numbers such as 9; for example, pricing a product at R 99 as opposed to R100. Studies have found that just this little bit of charm pricing can increase sales by 24% Another psychological form of pricing is called Anchor Pricing. This is when you display the original price together with the discounted price. The customers can immediately see the savings in the purchase price. What is crucially important when working out your sales price is for you to know what your breakeven cost for the product is, as without this knowledge you will not know if you are making a profit or not. To determine the breakeven point you must add all your fixed and variable cost and divide it by the number of products you produce. This is your breakeven point per unit. Now you should add your profit margin and you will have your sales price. Please share this video with a friend:    • How to Price your Products - The Dark Art   Visit our Website for all types of business registrations: https://www.swiftreg.co.za Please help us by subscribing to our channel: https://www.youtube.com/user/Swiftreg... Follow us on Facebook:   / swiftreg-517735934922309   Btw, if this price seems too high you should first trim your costs and not your profit margin. This cost plus method of pricing is very popular, but it has one flaw; it assumes you will sell all your product. When pricing you should consider other factors such as VAT, the cost of late payments, the life span of the product, bulk order pricing and wholesale prices. Please share this video with a friend:    • How to Price your Products - The Dark Art   Visit our Website for all types of business registrations: https://www.swiftreg.co.za Please help us by subscribing to our channel: https://www.youtube.com/user/Swiftreg... Follow us on Facebook:   / swiftreg-517735934922309