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 how to set your product price. Most will tell you to work out all your costs, add on a healthy profit margin, and there you have it.
I see a lot of sellers taking this approach and, honestly, I don’t think that’s the best way.
I believe you need to work out your product’s selling price before you find out how much it’ll cost you to produce it.
Here’s why:
Have you ever been browsing online, seen a product and thought it seemed way too expensive for what it is?
Did you then think:
“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, I guess 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 overpay 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, when I was selling bamboo baby products, they cost more to manufacture than similar cotton products (bamboo is more expensive). I charged more than most comparable cotton swaddles and towels, because bamboo has so many amazing natural properties. (Not because it cost me more!)
However, unless a customer knows and cares about how great bamboo is for their baby, many wouldn’t pay more for my products, when they can get something cheaper and possibly just as good for their needs.
And while I could justify pricing my products higher than comparable cotton products, I do still had to look at where I positioned 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.
What if you’re under charging?
Another scenario here is that you find out the production cost, you add on some margin and there you have it – you have your price.
The problem here is you could end up being way cheaper than any other products – which customers would also question. I’ve certainly wondered before why a product is £10, while everything else is £15 – and I never buy the cheaper one. Do you?
So, what do I suggest you do?
Set your price BEFORE you start to investigate costs.
I recommend pricing based on where your product fits into the marketplace. i.e. is it at the premium end of what’s out there, or is it a simpler product and is therefore priced to reflect that.
This way you know the price you set is realistic and when it comes to looking for a manufacturer (after you’ve worked out the potential selling price) it makes it easier to narrow down suppliers, as you have an idea of what you need the cost to be. (And if it’s lower then great – more margin for you!)
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 where your product sits, compared with other products in that niche.
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 and rule out potential suppliers most faster and easier.
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 you’ve just plucked a figure out of thin 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 manufacturing 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, looking at sourcing in different countries, 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) if the market changes. What I’m trying to avoid, is you pricing in a way that makes your product profitable, without considering it’s actual value.
Do you agree with this approach? I’d love to hear your thoughts in the comments.