A common approach store owners make when pricing their products is relying solely on numbers set by competitors. It’s a strategy that may work for some, but it’s a missed opportunity for most. By disregarding the other fundamentals of pricing, these store owners are likely not asking for the amount customers are actually willing to pay.
This won’t be you.
The following is a breakdown of each factor you need to consider in order to strategically price for maximum profitability.
Set aside time to learn more about your target customers. Understanding them will help you understand their purchase decisions. Look for valuable information such as location, age range, hobbies, average salary or household income, gender, etc. This data ultimately helps you determine the likelihood that they purchase your products.
Take a page from the beauty industry. In 2015, a study from New York's Department of Consumer Affairs, called "From Cradle to Cane: The Cost of Being A Female Consumer," revealed that women consistently paid more than men for similar goods, with the highest disparities belonging to personal and grooming products.
Tip: A market research agency can compile the information you need, but their rates won’t be cheap. Instead, consider starting with publicly available information first, such as government wage and employment statistics at www.census.gov.
Budgeting and Accounting
Do you know the cost of running your business? When setting prices, don’t forget that your first goal is to cover expenses like:
- Salaries of Full-Time Employees
- Hourly Wages for Contractors
- Product Costs
If you’re unsure on how to approach budgeting and accounting, consider purchasing user-friendly accounting software or hiring a CPA for help.
Maintaining a revenue target for every month, quarter, and year can greatly influence your product pricing strategy.
As we mentioned from the start, your competition’s pricing should not be your main focus. However, it is an important factor that deserves consideration in your overall strategy.
Competitive analysis is as easy as conducting a Google search for products targeting your key phrases. Look within both organic listings and sponsored results to gauge their pricing strategy.
Additionally, you can use Google’s keyword planner to figure out how much competitors are paying to list their products.
Regardless of what you sell, planning ahead is especially difficult for every new business. That’s not nearly a good enough excuse to disregard it. Having financial projections for the next quarter, year, or even 3-5 years will help you prepare for market gains and losses.
Remember, you can always change your projections as the industry changes.