Right Price: Review the value of your product
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Understand how pricing strategies work and ensure your business has a competitive edge.
In the adventure of being an entrepreneur, one of the biggest challenges is deciding on the price of a product. But what exactly adds value and which costs are incorporated into the price? Do you have to calculate or can you stipulate?
If you are looking for answers, check out some tips that Blog Cetro has put together to help you price products more easily. Especially if your product is different from the competition, there is no point in averaging out. Give your work its due!
Before choosing a price, understand your business!
Those who have these doubts usually just start in business. The financial part can be a little complex without understanding much about this universe. But study, research and adjustment can help you position your business on the right path.
To do this, first answer these three questions:
1- What is your business and what products do you want to sell?
By answering these questions, you will be able to explore the niche market you work in detail and you will be able to outline the results you want to achieve with the product.
2- Who is your target audience?
This question aims to define a focus and direct you toward the preferences of the desired audience (and to understand the price margin they usually pay). In general, the price has to find a break-even point that goes beyond your expenses, but without going too far above the market average.
The average is necessary, but do not just rely on it!
3- Is it possible to gradually change the product’s price and add value?
With time and the growth of your business, it is possible! With loyal customers, more stable sales, and a progressive profit margin, it's worth refining your processes and exploring other market niches to expand your possibilities. Just do not forget what got you there!
So what do I need to know to determine the price?
Starting without understanding how much a product costs is a risk that will probably end in a loss. Aligning your price based on the competition may not be a good idea since you do not know the processes behind your competitor's sale or product.
Now, how about we go straight to the tips on pricing?
Tip #01: Know how to calculate the price based on fixed and variable costs
Sometimes, not everything involved in the product’s production, packaging, and sale is seen as a cost. So you must write down all your company's expenses, whether fixed (do not depend on sales) or variable (depend on how many sales you make).
Fixed costs are an indirect attribute that will be covered by the product's profit. Amounts such as electricity, water, or gas bills are usually constant, which makes it easier to make an average of the fixed costs. To do this, divide these expenses by the number of products you make in a month.
On the other hand, the price of the product will depend on the variable costs. If your product needs specific labels or packaging and requires skilled labor, preparation time, and freight for transport, these amounts should be included in the final price.
Tip #02: Establish an effective pricing method for products
Of course, pricing will be different whether you sell a ready-made product or produce it yourself. For each case, we suggest a few methods for calculating the price (which should be adapted according to your reality):
- Check the products and primary materials for production: Usually, these products are bought in bulk and a price percentage is divided for each product. To calculate this percentage, use the "rule of three" to the value of the total quantity. By adding up the percentage of materials used in production and packaging, you can find the variable cost of that product.
- Keep a quantity standard: The standardization of the product is a characteristic that is highly targeted by the market and the consumer since it guarantees the produce origin and the relationship between price and quantity. In addition, you will be able to control the cost of materials precisely. To do this, try using a scale or a Dosing Machine.
- If you want to run promotions, find a value included in the product: In other words, you can't afford to lose out. So, if you want to use sales strategies, always try to opt for a price that you can discount in a way that does not compromise your profit or future production.
Tip #03: Make good choices according to your product’s quality and value
Of course, if you want to sell something, it's important to believe in your product's differential. In this sense, your choices before the product exists have a direct impact on the price you need to set. Therefore:
- Use safe and practical packaging: The packaging makes a great difference in standardization. Thus, investing in Sealer Machines is a good option to preserve the quality of your product and deliver it intact to your client.
- Have reliable suppliers: To guarantee the constancy of production and sales values, the materials also need to have this balance. Therefore, avoiding changing suppliers also helps with product standardization and quality. So choose your suppliers well!
- Set a fair price: Based on all these calculations, the result will be a good starting point. But if you have to make adaptations, establish a strategy so as not to impact your sales or the essence of the product.
Keep an eye on market changes and check your product’s price
Finally, do not forget that the market is highly variable. However, keep your strategies constant and, if necessary, make small adaptations to the market. This way, you won’t pay the price for going cheap!
Your main competitive advantage will be to keep up with the market trends. So, take the opportunity to check out other articles on the entrepreneurial universe and solutions on Blog Cetro to transform your business!