Determining the right price for a product or service is one of the most important elements in a business’s formula for success. If the price is too low, you’ll be losing out on well-deserved profits, but if the price is too high, you’ll be losing out on potential customers and clients. There are several factors to take into consideration when setting a fair price for a product or service. To share insights into what these factors are and why they’re important, nine professionals from Young Entrepreneur Council (YEC) answered the following question:
“What’s one factor you should consider when determining the right price for your product or service, and why?”
Here’s what they recommend you take a look at first.
1. Your Ideal Margin
“Understanding your gross margins is crucial. Knowing your ideal margin and benchmarking across the board will help you evaluate which products or services to increase or reduce. You may need to raise prices or decrease costs on products that aren’t netting enough. Justifying your cost of goods sold based on the product or service you’re selling is crucial to increasing overall profits.” ~ Jennifer A Barnes, Optima Office, Inc
2. Competing Offers
“When we launched our SaaS product, we first conducted the research to see what price our competitors were offering. That gave us a baseline price to start selling. Within four to six months of selling, we learned what our customers were willing to pay and our cost of acquisition. We adjusted the price based upon the customers’ input and cost of selling. It takes a few hits and trials to know the right price.” ~ Piyush Jain, Simpalm
3. How Much You’d Be Willing to Pay
“When pricing your product or service, ask yourself how much you, as a customer, would be willing to pay. Your target audience will fit into a specific bracket, so estimating your product’s value is crucial to its selling success.” ~ Jared Atchison, WPForms
4. The Total Costs
“Consider total costs. Obviously, there are soft costs of labor and materials, and hard costs of things like rent, utilities, vendor subscriptions and marketing. But, you also have the cost for you or your workforce to get this deal going, versus other opportunities. Take those costs, add your margin and quote the price. You’ll find that you’re far more confident in your pricing and walk-away points.” ~ Jonathan Sparks, Sparks Law
5. The Value Customers Will Receive
“The main factor in pricing your product or service is the value or set of values your customers will receive. It’s simple: More value means a higher price your customers are willing to pay. But the difficulty lies in objectively and correctly defining the product value and evaluating it. You need to include the question of price in every step of the product development process.” ~ Maksym Babych, SpdLoad
6. What the Target Market Can Afford
“Aside from calculating all your costs and profit margin, make sure you consider what your target market can afford and what they are willing to pay. Customers have an idea about what products are worth. If you’re going to charge more than your competition, you need to make it clear how you are better — or you find a market that’s glad to pay more, such as buyers of luxury items and services.” ~ Kalin Kassabov, ProTexting
7. Ongoing Support, Fixes or Upgrades
“An important factor is whether your product needs ongoing support, fixes and upgrades. In such cases, you can avoid charging a high price by adopting a subscription model. It gives your audience the ability to pay on a monthly basis and for you to continue developing your product and offering support to help your customers.” ~ Syed Balkhi, WPBeginner
8. Customers’ Emotional Connection
“Aside from knowing the costs associated with your product or service, you need to understand your customers’ emotional connection to the product or service and where they are along the buyer’s journey. Consumers will spend more when they have a connection to the product or service or when they’ve reached the decision stage along their buyer’s journey.” ~ Jared Weitz, United Capital Source Inc.
9. The Type of Audience You’ll Attract
“When determining the right price for your product, it’s important to remember not to sell yourself short. Too many business owners make the mistake of underpricing their products and losing out on ROI and extra revenue. You might think you’ll earn more with lower prices, but you also need to consider the type of audience you attract with your price point.” ~ Stephanie Wells, Formidable Forms
Image: Depositphotos
This article, “9 Factors to Consider When Determining the Best Price for Your Product or Service” was first published on Small Business Trends
