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One of the most basic and important decisions you have to make while starting or running a business is selecting the right product pricing. Every aspect of your business depends on the pricing that you choose for your offered products or services. From cash flow to profit margins, everything is interlinked with the price you assign your products.
But how to decide this price? Since it is affecting every aspect of a business, you need to put in a lot of thought into it. What most people do not understand is that product pricing is not a one-time thing. It’s not like you make this decision and then it is unchangeable. It goes on as long as your business is running, changing according to time and circumstances.
Of course, you have to start somewhere and that is where the pre-launch techniques come in handy. It lets you decide the starting price of your product that you will use while starting a product or a store. In this article, we will discuss this problem and its solution in detail.
How to Price Products Before Launching
Picking out the perfect pre-launch product price is a combination of little tricks and techniques. Here is how small things will add up and benefit you through the price that you select.
A Balance between Value and Price
Before deciding on a number, you must determine the value of your product in the eyes of the customer. The customer will only be willing to buy a product if he thinks that the product is worth the price he is paying for it. If the buyer is getting the features he needs and good quality at a reasonable price, he is definitely going to buy it.
These are the points one must keep in mind before determining the final price of the product.
Know your Competitors
Keeping up with competitors is very important while running a business. If you want to sell better and more than the brands or companies you are competing with, then two things are very essential. One is that you provide the same quality, if not better, than the competitor. The other is that your product should cost less for the customer.
To keep ahead of the competition, you should aim to provide the customer with the best quality products at a more reasonable price. Suppose that two companies are selling the exact same product but one is selling it for $50 and the other for $60. Clearly, the former is sold more times than the latter.
So, before launching your product, do your market research and decide on a price and quality that will keep you ahead of the competition from the start.
Calculating a Sustainable Profit Margin
Everyone wants to earn money. But if you want to run a successful business for a longer time, you have to think your profit margin thoroughly. Trying to earn more profit as a startup is never a good idea. But then, keeping your profit to a very minimum is also not a good practice as it will take a much longer time for your business to grow.
Hence, you should decide on a certain amount of profit that you can easily maintain for a longer time. This margin should be such that the customer does not feel that your product is overpriced but also your business keeps on growing from the profits that come in.
Study Customer Expectations
Studying your target audience before launching your product can really help you in making more sales as a startup and to grow your business sooner. The more you know what the customer wants and expects, the better you will sell.
To launch a product that the customer needs or wants at a particular time is important, but pricing it according to his expectations is quite essential for a new launch.
The first Step is not making maximum profits
Never make maximum profits your basic aim at the launch of your product. Although the goal of any business is to expand and generate maximum revenue, having a greater profit margin at the start will not help it. When you sell a product at a greater price than it is actually worth, people will never prefer buying from your company. Your foremost aim at the launch should be to attract more customers and make more sales instead of making more profit instead of selling overpriced products that no one will buy.
Though you should never overprice your products, the price should neither be too low which can affect your business in a bad way. Underpricing the products might lead to a loss in the business due to which the company might not run smoothly and even shut down.
How to Calculate Your Product Pricing
In order to calculate an appropriate price for your product before the launch, you should follow the following three steps.
- First, you must calculate the fixed cost of the production of a single unit. This involved the cost of raw material, rent, etc.
- Once you have a fixed cost figure, add the variable cost in it. The variable cost depends on different factors like the time of the year, the general economic condition of the country, labor costs, etc.
- In the end, add a sustainable profit margin. The profit should neither be too high nor too low. An amount that you can maintain for a longer time period to ensure the smooth running of the business.
Testing and Revising After Going Live
Once you have decided on a launching price, you are ready to send your product out to the market. But it does not end there. You must keep monitoring different factors and revising the prices accordingly to stay ahead of the game. These factors include the market trend, competitors, sales, customers’ expectations, and input, etc.
All these tips and techniques will not just help you in deciding the launching product price, but also how to monitor and change it as you progress through.