A clear goal of any entrepreneur or merchant is to obtain a good economic return from the products or services they offer.
Conceiving a business idea is the first step to undertake. However, this is only the beginning of a long list of details that must be considered if you want your business to grow and reach the objectives set.
One of the factors that will bring you closer to that goal and will guarantee the growth of your business is being able to identify your costs and also calculate the sale price of the products or services you offer.
This will allow you to clearly specify the criteria to define prices while remaining competitive or covering costs.
Pay close attention, because after reading this article you will learn how to calculate the price of a product and what factors you must take into account to do so.
Also read: The best sales management methods
What is the price of a product?
When we talk about the price of a product, we refer to the nominal value that it has when it is sold or bought in the market. You must bear in mind that there are many strategies associated with the process of calculating the sale price of a product, and this may depend on variables such as the type of business, the product, its quality or its existence in the market.
The price of a product will always start from the evaluation of the cost structure of the business since in this way it will be defined as what is truly profitable and does not face future losses.
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How to calculate the price of my products?
There are different criteria to define the prices of a product that you must take into account. Needless to say, choosing one or the other will depend, among other things, on the nature of your business and what you sell. These are some of the most used:
According to its costs and utility
To put a price on a product with this technique, the first thing is to know your business and its internal management in depth. Basically, you must analyze the operating and production costs, such as the materials used, rent, taxes, and salaries, among others, and set a sale value that helps you obtain the percentage of net profits. But beware! This criterion can be dangerous if you are not clear about how much the consumer is willing to pay for your product or service.
According to your competence
To calculate the retail price of your products you can not stop investigating your competition. You must do an almost daily study, and establish a balance in comparison to your closest competitors.
Keep in mind that it is not always about selling cheaper. If you are sure that the quality of your product far exceeds that of your competition, you must find an audience willing to pay for it.
According to supply and demand
Unlike the internal cost-based method, if you want to learn how to calculate the retail price taking into account supply and demand, you should know that these variables depend on external factors. For example, the perception of value that one or more consumers have about your product or service.
On the other hand, it is worth considering the economic dynamics of supply and demand: “the lower the supply, the higher the price and the higher the supply, the lower the price”. This golden rule will be your guide to calculating the price of a product.
According to the marketing channel
The price of a product that is sold in a physical store is not the same as one that is sold through e-commerce pages. In the first case, there is a series of expenses that must be considered, such as the rent of the premises, services and salaries. If you sell online you will have lower operating costs, and you will be able to lower your prices more easily.
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Also read: How to calculate sales estimates?
What to do if my competition sets lower prices?
This happens more often than you imagine. The truth is that, regardless of the category, many companies or businesses resort to promotions or low-price strategies to attract more customers. Remember that this is not always the right measure if it is detrimental to the quality of your product.
All the aforementioned criteria for defining the prices of a product are related to the nature of the product. Making a decision without prior analysis can lead you to close the doors of your business faster than you imagine. Here are some tips to avoid it:
Do not negotiate the quality of your products
We generally look for a product that satisfies a need. But if it is also a product that offers value and improves the life of your client, he will be willing to pay more regardless of the prices of the competition.
Give value in what you offer
The quality, attention and value that you can add to the entire shopping experience will make the difference.
It is not just about putting a price on a product, but about guaranteeing that your client is satisfied with what you offer. Having a portfolio of consumers loyal to your brand will always position you above your competitors.
Study the reasons for your competition
These moves are pretty strategic, though we can’t guarantee they’ll always work. Investigate the reasons and motivations of your competition and review your own. Do not rush to imitate their behavior, as it could bring you losses.
Now you know how to price a product and what criteria you must follow to define sales prices. Remember that there are not two identical realities and what may work well for your competition is not necessarily a suitable strategy for you.
Defining a plan and executing it in the best way will guarantee performance and allow you to anticipate any eventuality. It is also convenient that you learn how to manage debts or losses.