Working Out Your Product Price

You have to admit that one of the difficult decisions that you may have to make when you have developed a product is what price you’re going to sell it for. The decision can be made a lot easier though by considering the following pricing objectives:

• What is your target return on investment for net sales
• Are there similar products in the market you need to compete with
• Do you want to maintain market share or increase it
• Do you block out the potential for new competitors to enter the market
• Do you want to maximise short or long term profits
• Do you want to prevent a loss-making situation

Although, looking into these further you can refine these pricing objectives into four basic business objectives.

Profits

Of course most people are interested in greater profits, but there are a few things that should be considered, just making a lot of money quickly isn’t generally the best way to go about it. For example, if you are just releasing the product, a lower price may be a good way to entice people to try out the product, and can give you feedback and confidence to increase the price later, plus give you cash flow to reinvest into the product development and marketing.

You may also want to consider lifestyle goals, such as, do you want to have a lower individual profit margin with more sales – results may come quicker, however, you will have more clients to deal with. Or you could have a higher individual profit margin and less sales – may result in slower results, but you will have fewer clients to deal with.

Sales Volume

Sales Volume is really in direct relation to the profits, if you have your target return on investment in mind, you can then use a realistic sales volume prediction to focus on a reasonable product price. Or looking at from other directions you can work out your profits from your predict sales volume and an established price, or work out what sales volume you would need in order to achieve your target profit for your known product price.

Business Survival

Business survival is definitely an important aspect to consider when deciding on a product price, especially if it is a new product without an existing market, if it is a highly competitive industry or if you have outside overheads such as the cost of transportation, manufacturing etc.

If you don’t decide on a price that considers these things, you might be selling to a market that isn’t hungry enough to pay the price of your product, you won’t be able to gain any market share or your overheads will exceed your returns and you’ll be running at a loss rather than a profit.

Prevent Competition

If your product is somewhat revolutionary or in a new market, and there is not a lot of existing competition, being careful when considering your price is a good idea. Why you ask, well you want to give the impression to potential competitors that the product you’re offering cannot make sufficient profits. This way they may not consider entering the market and you’ll have a greater market share which will mean a greater overall profit. Plus, once you have reached your profit targets, you can always increase the pricing.