Product Pricing
How Do I Determine What to Charge for My Products
Pricing is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place. It is also a key variable in microeconomic price allocation theory. Price is the only revenue generating element amongst the 4ps, the rest being cost centers. Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors.
That sure helps doesn't it. How about purchase at wholesale, sell at retail and make a profit. Simple, but that is not all there is to it either.
In this article we are assuming that you are not manufacturing the product or selling your own book. We will cover those in a seperate article. We are assuming the typical internet selling situation where you purchase a product at the best price possible and then re-sell it via the internet. We are also not going to try and teach a college course here, there are great links provided below for extensive study on this subject matter. We will attempt to help you get started quickly and right.
This is a product that we have sold successfuly for several years. It was one of the first products we started selling on the internet. We will take you step by step with this example. We will refer to it other articles in this marketing series.
Before setting a price for your product you need to know the costs of running your business
I can't disagree with that, but you are just starting - you do not know your expenses yet. Here is what we did:
We selected a product that was easy to ship, mistake proof, was used by the customer and then needed to be replaced, was inexpensive enough that a customer could say yes without a lot of risk and related to our other product offerings.
We then searched the internet for the product to determine what the competition was doing. We looked at pricing, shipping and quality of product.
Once we determined that we had a product that we could sell effectively and we knew it would provide us with satisfied customers that would not only buy again but also be willing to look at our other product offerings we established a price.
Prices are generally established in one of four ways:
- Cost-Plus Pricing
- Demand Price
- Competitive Pricing
- Markup Pricing
Cash Disbursement Journal
The product has increased in price 7% over a 5 year period. We make a profit [not our best margin product] but this product has brought us over 2200 customers that spend on average over $500,000 with us. Throughout this series we will explain exactly how that works.
We started at ZERO and now it is very rare that we have a day where we do not sell at least one. Our other products - well we started at ZERO with those also. We now sell just under One Million Dollars of products per year and our business is growing at a rate of 35% per year. Did we work hard - you bet. What can we tell you based on our experience. Find what works and do it over and over again as many times as possible. Did we want to quit sometimes - you bet. Don't Quit
Pricing is something every business person should think about. Even if your product is unique, making you a market leader, it does not mean that that you can charge very high prices over time. Your customers can still pick an alternative or not buy at all. At the same time your high margins may give incentives to competitors to copy your product and undercut your price. If your product is not unique, making you a market follower, then setting prices is a little easier. You simply can't be higher than your best competitor. The question now becomes this: Should I be selling this product? The answer lies in the margin.
Here are some basic calculations:
| direct costs margin = sale price - total direct costs |
| direct costs margin per cent = direct costs margins divided by sales price times 100% |
| break-even volume = (fixed costs divided by direct cost margin %) divided by selling price |
| break-even price = direct costs divided by unit + fixed costs divided by volume |
| profit price = direct costs divided by unit + (fixed costs + desired profit) divided by volume |
If you determine that you can't sell at a price that is competitive then you need to lower your direct costs, fixed costs or desired profit. Or consider not selling this product and focus on another.
Regardless of the pricing strategy used, the retail price of the products should more than cover the cost of obtaining the goods plus the expenses related to operating the business. A internet marketer simply cannot succeed in business if they continue to sell their products below cost.
As you develop the best pricing model for your internet business, understand the ideal pricing strategy will depend on more than costs. It is difficult to say which component of pricing is more important than another. Just keep in mind, the right product price is the price the consumer is willing to pay, while providing a profit to the internet marketer.
Everything you would ever need to know about Product Pricing can be found here:
| Pricing a Product |
| Product Price Calculation |
| Pricing |
| Joint Product Pricing |
| About Product Pricing |
| Free Product Sourcing Newsletter |
| Chris Malta WorkShops |
| Product Pricing Books |
Key Concepts
Product Pricing - Promotion - Distribution - Service - Retail - Brand Management - Account Based Marketing - Marketing Effectives - Market Research - Marketing Strategy - Marketing Management - Marketing Dominance
Promtional Content
Advertising - Branding - Direct Marketing - Personal Sales - Product Placement - Public Relations - Publicity - Sales Promotion - Underwriting
Promotional Media
Printing - Publication - Broadcasting - Out of Home - Internet Marketing - Point of Sale - Novelty Items - Digital Marketing - In Game - Word of Mouth
