Among the many important decisions that need to be made when designing a business model, coming up with the right price might be one of the most crucial in determining your success. Charge too much for what you’re offering and you won’t be offering good value for money and no one will want to bite.
But don’t charge enough and you won’t be able to keep your business afloat on the profits – and you might find that people actually assume that what you’re selling isn’t very good.
Fortunately there are lots of strategies and standards that make this decision a little easier to make. Read on and let’s take a look at how you put a price on all that hard work…
Research
First of all it’s crucial to ensure that you research the market that you’re entering to see how much is regularly charged for your item or service. This way you will know what you’re competing with, and at the same time you’ll get an idea of what people are willing to pay.
Which are the most successful business models in the space? What can also be useful is to use surveys and to ask focus groups in your target demographic what they think the experience is worth. This way you can move forward with a lot more confidence rather than blindly hoping people will willingly part with their cash.
Costs
Next you need to work out what the costs are to you when you produce the items or provide the service. In the case of a physical product this will mean finding out how much manufacturing cost, while for services it will mean looking into expenses and supplies. At the same time though you also need to work out how much you will be spending on the extraneous elements – on transport, on distribution, on packaging and on labour.
This way you can calculate a rough ‘per unit cost’ which will tell you how much you need to charge in order to make profit. If you calculate your existing debts and other problems too, then you will be able to pin point how many sales you’d need to make in order to break even and start turning profit overall. There are many accounting solutions that will help you with this process.
Picking the Price Tag
So now you know how much you need to get for your items, but remember that this isn’t the price your customers are going to be paying. This will be the ‘wholesale’ price, which is the amount you are going to charge the resellers. Of course they still need to make a profit though, and if you follow the ‘keystoning’ standard of pricing, then they will want to charge roughly twice the amount they pay for the item. And according to the 1-5 rule, that eventual cost should be five times the amount of your per unit cost.
Of course if it’s a service you’re providing then there will be no resellers to consider, meaning you get to keep a lot more of the product. Either way, if you can work your numbers so that this all works out, then you should find that your items sell like hot candy and that everyone involved gets to take home a good cut of the pie at the end of the day.
But don’t charge enough and you won’t be able to keep your business afloat on the profits – and you might find that people actually assume that what you’re selling isn’t very good.
Fortunately there are lots of strategies and standards that make this decision a little easier to make. Read on and let’s take a look at how you put a price on all that hard work…
Research
First of all it’s crucial to ensure that you research the market that you’re entering to see how much is regularly charged for your item or service. This way you will know what you’re competing with, and at the same time you’ll get an idea of what people are willing to pay.
Which are the most successful business models in the space? What can also be useful is to use surveys and to ask focus groups in your target demographic what they think the experience is worth. This way you can move forward with a lot more confidence rather than blindly hoping people will willingly part with their cash.
Costs
Next you need to work out what the costs are to you when you produce the items or provide the service. In the case of a physical product this will mean finding out how much manufacturing cost, while for services it will mean looking into expenses and supplies. At the same time though you also need to work out how much you will be spending on the extraneous elements – on transport, on distribution, on packaging and on labour.
This way you can calculate a rough ‘per unit cost’ which will tell you how much you need to charge in order to make profit. If you calculate your existing debts and other problems too, then you will be able to pin point how many sales you’d need to make in order to break even and start turning profit overall. There are many accounting solutions that will help you with this process.
Picking the Price Tag
So now you know how much you need to get for your items, but remember that this isn’t the price your customers are going to be paying. This will be the ‘wholesale’ price, which is the amount you are going to charge the resellers. Of course they still need to make a profit though, and if you follow the ‘keystoning’ standard of pricing, then they will want to charge roughly twice the amount they pay for the item. And according to the 1-5 rule, that eventual cost should be five times the amount of your per unit cost.
Of course if it’s a service you’re providing then there will be no resellers to consider, meaning you get to keep a lot more of the product. Either way, if you can work your numbers so that this all works out, then you should find that your items sell like hot candy and that everyone involved gets to take home a good cut of the pie at the end of the day.
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