Establishing the value of merchandise is complex and can cause headaches for entrepreneurs. With that in mind, here are ways you can learn how to price your products and services. Keep reading!
What is the price of a product or service?
Knowing how much you should charge for your work is the result of a broad analysis of essential factors, including:
- Cost: gather all the essential components needed to manufacture the products, including taxation, marketing strategies, and distribution.
- Competition: the prices of your competition will help you understand the dynamics of the market. Despite the freedom to set values, market competition will force a balance between prices.
- Consumer: the economic scenario will also have a great influence on price setting. Even if your products or services are better than the competition, the consumer is not always willing to pay the price requested. For this reason, study the target audience, their consumption habits, and their purchasing power.
- Added value: all merchandise gains support when it meets the needs of customers. It is adding value when the company manages to captivate its audience and retain it. This relationship of trust also influences the final price.
How to establish the sale price of a product?
The price policy varies according to the type of company and involves subjective conditions. However, some actions are useful for any model. These are:
Identify your costs and expenses
The first point you must evaluate when determining the value of your products or services is the amount paid up to the point of delivery to the consumer; such factors will directly influence the amount charged.
Expenses include general expenses and can be difficult to individualize. They are the necessary expenses for the full operation of the company, employee compensation, marketing strategies, and office materials. In short, items that do not directly contribute to the final business activity. However, they cannot be forgotten. Already the costs comprise more specific and divisible aspects, such as supplies, equipment maintenance, water, electric power, travel of employees, cleaning materials, and everything related to manufacturing.
The costs and expenses can also be classified as either Fixed, which are not modified depending on the volume produced or sold, or Variables. The consumption is modified according to the quantity of the items.
The entrepreneur should keep in mind that a large volume of sales or an extensive list of customers is not synonymous with profit. There is a possibility that your products are being acquired because their price is lower than that of the competition; this can be very dangerous for your venture’s financial health.
Analyze the market
Market conditions can never be neglected or put at the end of the list of priorities. Therefore, before setting your price, you must observe the price that your opponents are implementing because that also serves as a parameter for your final pricing decision.
It is common for entrepreneurs to reach more competitive amounts in certain campaigns, much lower than the market. However, charging less than the competition cannot be a constant focus where it inhibits making a profit. That is why a detailed analysis is so important.
Fix the profit margin
The profit margin is what brings true meaning to the existence of any company. What is the logic of charging only enough to cover expenses? If your billing allows only what is necessary for the company’s survival, it is time to reassess your business plan. Profit is the difference between the turnover obtained by sales of a product or service and the costs to execute the work. However, deliberating on the profit margin is not simple; maintaining balance is manifested as the most appropriate decision. What is the use of wanting to earn a lot and charging more than the competition if your products are stuck in shipping? What is the use of reducing prices to increase if it ruins the business’s financial stability?
How to know if the value paid for my services is fair?
Establishing the prices of services can be measured by objective elements, such as expenses to make work feasible: taxes, electricity, water, salaries, materials and equipment, displacement, internet, telephone, etc.
Added to these factors are the subjective aspects, which must also be considered in the final value.
In this context, the difficulty of the demand is inserted and an estimate of the time necessary to complete the task, as well as the differential in the quality of the workforce. The last step is to estimate the percentage of the desired profit.
The collection for services is done in 3 different ways:
- Per fee: monthly remuneration for the total of the services or amount of hours worked.
- For work: an anticipated estimate of each service based on its duration.
- Closed package: the price for performance of the activity is measured based on the number of hours and previously paid. In case it is not enough to conclude, the surplus will be charged separately.
What are the benefits of setting prices effectively?
Reduces business risks
As mentioned, a high volume of transactions does not ensure financial stability, much less the organization’s success. Selling more implies the increase of resources coming out of the box.
When we do not establish prices correctly, the risks for the venture to fail or suffer from market alterations are high. The business world is cruel to those who are not prepared, and knowing how to stipulate a correct price is important to stay on top.
Regardless of your industry, competitiveness is another reason to manage the prices of your products well. The idea is to extract the maximum potential from the resources; that is, to produce more using the minimum.
By decreasing the cost of clothing, it becomes possible to campaign with good offers for consumers, stimulating the market dispute without putting the company’s financial health at risk.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.