If you’ve gone to (or are going through) the process of creating a product then one thing you need to decide is what you’re going to charge for it.
How to price your product
There’s lots of information about the psychology of pricing. Most will tell you to work out all your costs, add on a healthy profit margin, and there you have it.
I don’t think that’s the best way.
I believe you need to work out your ideal selling price BEFORE you find out how much it’ll cost you to produce your product.
When did you last go to buy something, or just be browsing, and think a product seemed too expensive for what it is? Or maybe you actually bought something online, it turned up and then you thought “how could they charge that much for this bit of plastic?!”
My second question:
Have you ever thought
“Well, I suppose it cost them a lot to produce, then they needed to get it shipped over here, pay warehouse fees and postage. I guess they wanted to make a decent profit too so, with all that in mind, this is a fair price.”
I’m guessing not.
The thing is, consumers don’t care what it costs you to produce, ship and store your product (not to mention all the other costs – a rundown of which you can see in this post).
Few, if any, people think about the chain of events that take place before they buy something. And, even if they do, why is it their problem?
People won’t pay a premium just to help you make a profit.
In fact, even if you want to charge a premium price, for a premium product, you still won’t get everyone on board.
For example, my products cost more to manufacture than cotton products (bamboo is more expensive). I charge more than most comparable cotton swaddles and towels, because bamboo has so many amazing natural properties.
However well I communicate that, unless a customer knows and cares about how great bamboo is for their baby, many won’t pay more for my products, when they can get something cheaper.
And while I can charge more than for cotton products, I do still have to look at where I position myself amongst the other bamboo baby products on the market.
Which leads me to my point that if you research the market thoroughly, while your product idea is still being developed, you can select a price that makes sense.
So, what do I suggest you do?
Set your price BEFORE you start to investigate costs.
How do you do this?
My advice is to look at what’s on the market already.
See what features similar products have, what they cost (and, importantly, what people think about the price.) You can do this all online by reading up on products, seeing what features they offer and reading the reviews.
You can then decide whether your product going to be at the higher or lower end
What improvements will you make to your product that allows you to charge more.
Of course, if your product is completely original then this will be trickier. However, there’s no such thing as an 100% original idea, so look at things that are comparable in some way.
Just to reiterate, there are some important reasons I’m asking you to think about the price before you look too closely at the costs:
- After researching similar products, hopefully you have an idea as to where your product fits in. Are you offering a more basic version, that you can (hopefully) manufacturer (and therefore sell) at a lower price? Or are you going for a premium version, with a price point to match?
- If you know your target selling price before you get the quote for actually producing your item, you can be more objective.
As an example, imagine similar products are all selling for somewhere between £10 and £15. When you get your quotes, you find out that the total Cost of Goods (including manufacturing, shipping, importing, etc) is £13. If you hadn’t yet decided on a price, you might therefore be inclined to price your product higher, so you still make a (small) profit. However, choosing a price this way means less chance of success – as you’ve just plucked a figure out of the air!
If you have your price worked out beforehand, you can then make an informed decision about whether it will be profitable – and even viable.
And don’t worry – if quotes turn out to be more expensive than you had anticipated there are always things you can do such as looking at alternative products, or suppliers, sourcing in different places, investigating alternative shipping methods, or refining your product specification.
Remember, you can always tweak your price once you have the costs (and even when it’s already selling) too. What I’m trying to avoid, is you pricing in a way that makes your product profitable, without considering it’s value.
Do you agree with this approach? I’d love to hear your thoughts in the comments.