3 Money Secrets You Need To Know!
You’ve done the work. You are finely ready to open your business! You feel nervous and excited all rolled into one. However, you have one key step left to accomplish and that is correctly pricing for your products and services.
We call this the silent saboteur, because no one regularly talks about how to successfully price your products and services. Most small business owners like you are left to guess what they should be charging and hoping they are getting it right.
We are going to change that. Today you are going to learn the three secrets you need to know about how to successfully price your products and services.
Know Your Revenue Target When Pricing Your Products and Services
Your first step in correctly pricing your products and services is set your target revenue goal. This is how much money you want to generate from your business during the next year. If you need help with this we have a Financial Guidebook and Toolkit that you can download right here that will walk you through it step by step.
Take that revenue target, factor in your costs for producing, marketing, and selling your product or services and you can come up with the number of products and services your need to sell and a price per product that you want to charge to reach your goal. As a result, your markup or profit margin per item is usually no more than 35 – 50 percent above your overhead costs, which include your costs of the item or service you are providing.
If you only have one product, this is a simple process. Simply estimate the number of units of the product you expect to sell over the next year. Next, divide your revenue target by the number of units you expect to sell and you have the profit margin at which you need to sell your product in order to achieve your revenue and profit goals.
However, if you have a number of different products, you will need to allocate your overall revenue target by each product. Then do the same calculation to arrive at the price at which you need to sell each product in order to achieve your financial goals. Remember to not over price your item or service. The “use-value” to you customer should far exceed the “cash value” they pay you, but don’t under sell yourself either. Which brings me to my next point.
Know Your Competition When Pricing Your Products and Services
It’s helpful to look at others in your industry when pricing your products and services. After all, your customer most likely will too. Are their products offered comparable to yours? If so, you can use their pricing as an initial gauge.
However, we strongly caution you against pricing your products and services below your competition. A more successful strategy would be to price your products and services a bit higher that your competition, but offer additional value. As a result, your customers will see you company and your products and services as higher quality and a better overall value. One additional tip, be cautious about regional differences and always consider your costs.
Know Where the Market Is Headed When Pricing Your Products and Services
Clearly your not a mind reader, but you can keep track of outside factors that will impact the demand for your products and services in the future. These factors can range from something as simple as long-term weather patterns, global events such as our recent pandemic, to laws that may impact future sales of your products. As a result, take into account your competitors and their actions.
Will a competitor respond to your introduction of a new product or service into the market by engaging your business in a price war? A good example would be the way Samsung has gone after Apple iPhones.
Samsung provides a lesser priced product, but so is the quality with an exceptionally high repair rate. Apple’s prices have remained largely unchanged while their customer service has become one of the best in the industry. Consequently, you will need to know what is more important to your particular market and what they are looking for, low price, or high value and quality.
If you are wanting to get your business off to a running start and you have questions or would like more personalized help please feel free to click the Help tab above or send us a message. We will be happy to help you create practical strategies for creating more success in your business, current career, or personal development. And, if you are at a pivotal moment in you life and you are just trying to figure things out, we have two resources for you just below.
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