Your business success or failure can come down to your product and service pricing methods. The price of your products sets the pace for your sales and the value of your business. To come up with the right prices is tricky. If you are too high customers will refuse to purchase. If you are too low, you may sell above your quota, but your profit margin will be lower than you’ve expected.
For me, pricing my woodcarvings and other products was a result of trial and error. I researched prices charged by other woodcarvers with products like mine. Most of them were random in their pricing, however I noticed one carver based his prices on measurements of the pieces. This seemed like a more logical and precise method. His price equation was height times width times 4. I tried that equation on my wood carvings. But because I was new to the wood carving business, I also compared the quality of his work and my beginning quality and adjusted by equation. I lowered the number from times-4 to times -2. That price equation seemed right for my work at the time.
Gradually, the quality of my work increased but kept my same price equation. People told me I charged too little. I reevaluated and changed the formula to times-3. Again, when others looked at my work said my prices were too low I raised the price about ten to twenty percent.
Watching customer’s reactions to my prices gives a good insight for the right numbers. If they purchase a new item too quickly it may be time to raise the price on that model. One example, I sell driftwood to fish carvers. One man asked me to search for a bundle of drift wood to use as mountings for his fish carvings. I got him a small pile. He said yes to my price very quickly, without a second thought. He wanted more. I got twice as much and charged him twice plus twenty percent. He also jumped on that price. He wanted more. I got twice as much as the second load, doubled my price again and added another twenty percent. He said ‘ouch’. I had found the price ceiling on piles of drift wood.
For commission work I increase the price a bit more than for non-commission work of similar design. I give the customer the price and wait for the ‘ouch.’ If not, the price is good or I can wait for the next commission customer and experiment on my prices again.
In determining pricing as the business owner, you need to account for employee salaries, overhead expenses, and supply costs when considering prices. Don’t forget what you want left over for-profit margin. Are you expecting a high profit margin? Are you expecting a small profit margin with higher sales? Also, you may need to keep in mind that higher profits are needed for investments to keep your business growing. Your business success or failure can come down to your product and service pricing methods.
Product and Service Pricing Checklist
1) Research your competitors’ prices for similar products/services
2) Research your competitors’ quality for similar products/services
3) Observe your customers’ reactions to your prices
4) Study and research the value of your competitors’ product/service and adjust the quality of your product/services for maximum value
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