Do you have a product or service based business? Both types need to ensure your income is worth the time and expense you have invested. The first step in achieving this is to choose the right pricing for your business. There is more to choosing what your product or service is worth than making a calculation and more to selling that price than just displaying it. Here is a guide to choosing the right price for your business.
Part 1: Choosing a price
What to consider when choosing a price
- Gross Profit Margin – Your gross profit margin is the amount of revenue remaining after the cost of buying or manufacturing a product. This margin is represented as a percentage. The Formula is (price-cost)/price. Research what the generally accepted target is for your industry.
- Consumer Maximization – Of course you want to make the best profit margin you can, but be mindful of what is reasonable for your consumers to pay. Take into consideration: desirability, market competitiveness & uniqueness or you product or service.
- Study Competition – It is easy to try and play the game by having the lowest price, but be sure to stay in the market. Depending on what you are trying to sell, having the lowest price is sometimes a red flag to quality.
- Adjust Accordingly – Every business changes pricing. If you are a supplier and you change your price, your buyer is probably also changing their price. Do not be afraid to track your costs and ensure you stay within your profit margin.
Part 2: Marketing A price
Here are some tips for marketing your prices
- Display pricing in smaller font size – The value of your product should outweigh the price
- Don’t use commas – This implies a large price
- Use words that are related to small magnitude – low maintenance, fewer hours, less time
- Display prices in red to men – Psychology will have to explain this one
- Expose people to any higher number – This makes the price seem smaller in comparison
- Add slight price differences to similar products – Having multiple options available betters your chance of a sale
- Use frequent price increases – This will keep consumers from noticing price increases
- Position sales prices to the right of regular prices – We read from left to right. This creates the illusion of a funnel making the price smaller
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