When it comes to pricing it is vital that you are getting it right. Ask people to pay too much for a product or service and you will lose their business but make the price too low and you’ll be reducing your profit margins or potentially losing customers as they could assume the quality of the item or service is not up to scratch.
There are several factors to consider, price being the most important of the 7 P’s of the marketing mix that when used will help you come up with the perfect price and strike that perfect balance between profit margins, covering all costs and still remaining attractive to customers.
The Seven P’s
- Know Your Market
You need to have a clear understanding of your target market and what they are willing to pay out for the product or service you have to offer. It helps to understand what pricing your main competitors are using and from that, you can decide if you are looking to match or beat their price. With this always be mindful that all of your costs are still being met.
- Have A Pricing Strategy
You can either use cost-plus, which is pricing that includes adding a percentage mark up to the initial costs. Or, value-based pricing, where is based upon a monetary value amount that your customers attach to the product.
- Know Your Costs
You need to work out the minimum amount you need to make to break even. This includes working out all costs for development, supplies, materials along with a percentage as to the overhead costs that the product must cover. You then add them together and divide them by the number of products. This is your break-even figure.
- Consider Cost-plus Pricing
Now you know your break-even figure consider adding a margin to this. Knowing the market will help you decide on the percentage markup to consider. This way to price does work on a assumptive basis that all products are sold, so be aware if this does not happen your margins will drop.
- Set A Value-based Price
This is reliant on knowing the market and you determining a price based up[on the market pricing for that specific item.
- Think About Other Factors
There will always be changes that take place. It is important to consider how these might impact you and plan to mitigate accordingly. For example, if VAT changes, how will that impact profit margins, and also if there is any need to writing in terms and conditions within your pricing for breach of contract or late payment.
- Stay On Your Toes
You will need to continually be reviewing and changing your pricing. Your costs, customers’ expectations, and competitors’ prices can vary regularly so it is important to keep an eye out and change to keep in line with the market.
In order to get your price right, you will need to consider these points and how ultimately you want to ensure that you are benefitting from the most important P of all. The price.