What is the right pricing for your items?

If there’s one thing that informs almost every aspect of your business, it’s the way you price your items or services. Your pricing determines what your market is, how you’ll source your items, and what your profit margins will be.

That can seem overwhelming, but remember that just because you start with a price, doesn’t mean you can’t change it later. Also, your pricing will depend on what kind of items or services you sell.

You can find a good starting price by taking into account three things. Consider:

  • Variable costs per item: If you’re ordering items to sell, this is just the cost of the goods sold. But if you make your own items, this includes the cost of your materials, the cost of your time spent making each unit, and the cost of finding your own packaging.

  • Fixed costs: These will always be the same no matter how many items you sell, and include things like utilities and web hosting costs.

  • Desired profit margin: This depends on your market, as different customers will be comfortable paying different amounts for their items.

Pricing formula

Once you know all these things, calculate your price with the formula: cost price + profit margin = selling price. Another way is to divide all your costs by 1 minus your profit margin. So for a 20% profit margin, you would divide everything by 0.8 to get your target price.

This pricing strategy is based on covering your costs. Another option is value-based pricing, where you set a price based on the value customers see in your item. To make value-based pricing work, you’ll need to look at your competition. Find out:

  • How your items compare: What are the differences in features and quality? Are you offering more than the competition?

  • Who offers more service: Whether that be customer service, returns, or something similar.

  • Brand recognition: How does this and other intangible factors influence customer buying decisions?

Value-based pricing is more abstract than cost-based pricing because there isn’t a concrete number you’re aiming for. It can be more difficult to get right because of this, but can also return higher profits, if you can get customers to put a lot of value in your brand.

And remember, you can always adjust your pricing if something isn’t working out. The market is always changing as new competitors and trends emerge, so flexibility is key.

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SumUp Team