Finding the Perfect Price for your Service or Product

Finding the Perfect Price for your Service or Product

OK, you’ve got your service or product you want to sell, but how on earth do you work out what to charge? It’s not easy but we will attempt to give you a formula. We’ll use product as the generic term for what ever it is that you are selling.

The price you can charge is a factor of all of these things:
* What it costs to produce or provide the product.
* The cost of adding future upgrades or enhancements.
* What it costs to sell it, including wages, retail, web or office space.
* The cost of marketing the product and building the brand.
* A reasonable profit for your company – such that it/you want to continue in business.

So far so good, the above is not that difficult to calculate or make an educated guess at. Now comes the difficult part of the equation.

* Perceived value of the item – that is how much people desire the product. If you are in the under 30 years of age market – this is vital. There is a reason that one car or one computer, one MP3 player or one watch is more desirable than others – that is that people perceive the value of one brand to be much higher than another. Why should one pair of sports shoes marketed by a well know sports star be valued more than another? Because money has been spent on branding and people desire it more – to keep in with their peers – or to be better than them.

* The actual demand for an item. There is no doubt that people will always some items such as clothes, such services such as health services as money becomes tight, then these demands change as people put together their own lists of what they want against what they need. Scarcity plays a large part in this as well, hence the rush for plywood and duct tape when the hurricane season is upon us, we know it’s available, but are scared the price will go up as it becomes harder to find. This also works with items such as diamonds – which are expensive because they are relatively scarce.

* The value of the item to the purchaser. This is particularly true with services. If you can provide a service that costs $1,000 but saves the purchaser $10,000 then you have got an attractive service. Similarly if you can do something quickly and cheaply, that the purchase has neither the desire nor skill to do, then you can charge a good price for it. Think of how many busy people pay NOT to have to mow their lawns each week. How many people pay a lawyer, to avoid paying out large expenses etc?

* What your competitors are charging. If you have a similar or slightly better product than all the others, then if you can afford to sell it cheaper – then you are going to make more money in the long run! Just be aware that if you are too cheap then people are wary as to the quality of what you are selling.

So how do you work this all out then? Studying and understanding your market, your potential customers and where your product fits in to all of this.

Good luck.