Product pricing: 4 tips for getting it right
Building and running a business is hard, but one of the most important—and most forgotten—parts of running the business is finding the right price to sell your products. If you price too high, people won't buy it and you lose money because your customer's perceived value was lower than the actual cost. If you sell too low then you're leaving money on the table that could help you with things like improving your inventory, marketing, and hiring.
So how do you find that goldie locks price for your product? Well there are a few different ways...
Willingness to Pay
This is something that can be uncomfortable at times, but who better to set the price of your product than those who are going potentially buy it? You can start inquiring about price before you even have a product to sell. All you need to do is describe the concept and the potential value of the product, gauge their interest, then ask them how they feel about it at a specific price. If you ask enough people you might find out that people are willing to buy that cup of coffee for $16 (Blue Bottle Coffee did it).
"Ask someone if they like a product. Then ask them if they like it at, say $20."
Actions Speak Louder Than Words
Of course, as they say in Game of Thrones "Words are wind." If you can actually get someone to buy the product at a specific price point then you're getting real feedback—though it's best to get lots of feedback because everyone's perceived value of something is different. In the early days it's not that hard to adjust the price daily or customer-to-customer. You can do this online via A/B Tests, or in person by using different price tag amounts, or having a menu that you can easily change the price on (like a chalkboard menu).
Understand All Your Costs
Before you set a range of pricing options it's best to understand what your costs are to make sure you can cover all them costs and make a profit. Figuring out all these costs aren't always so cut and dry. New business owners find themselves surprised by how many hidden costs pop up once they start a business. These costs can include shipping, marketing spend, cost of holding inventory, supplies if your building it, labor, and so many other factors. These will also change with demand, market trends, and other circumstances, and your pricing must be able to adapt with these changes.
Know Your Competition
Every business has competition — and understanding how they price and market their goods can help you understand how to sell yours. Many starting companies try to break into a market by pricing under their competitors. This can be a great strategy, but it can also backfire. Price your product or service too low, and customers might devalue what you’re offering. A price war with a more established competitor can be dangerous for business, especially if they have more clout in the community and have a strong following.