It does depend on what you are selling, as a pricing strategy will be different for either products or services. With a product, I always felt that you take the cost price and look for 100% mark up but again, it really does depend on the item and what you think your turnover of the item might be.
In terms of services it is different again. I am a head of SEO at www.mysticsense.com where our online psychics are advised to start off with a low rate per minute, undercutting the established advisors, whilst they have no ratings or regular customers, in order to encourage people to try them out. After they gain a good set of star ratings and an excellent reputation, they can raise their prices. We do not recommend any of our psychics increase their price by more than 20% at any one time or more than once a month. Equally, when they become more established a higher price indicates quality and actually attracts customers thinking they will receive a premium service.
Overall, it is mostly a trial and error experience to see if you can hit a sweet spot with pricing and stick with it.
Analyze the prices of competitors offering similar products or services. Then set you prices near their prices. This will mean your prices are always near the market price.
Alternatively, you could also determine what it costs to produce your good/service and charge a set percentage over top of costs. For example, if you want a 30% profit and it cost you $1 to produce your thing, you would charge $1.30. This method can allow you to seriously undercut your competition.
There are 2 popular pricing methods. One cost+ pricing and other value-based. I have always preferred the latter one.
A general rule of thumb method for cost+ pricing is that if your cost of goods is $1 then keep the pricing thrice i.e. $3. This varies from business to business. Also, you may go by calculating the fixed costs and the variable costs in your business and then mark it up with profits.
Talking about value-based pricing, it is completely based on how do you position your product/service and the value it translates on the customer's end. A great example of this would be Apple products. However, this model would be difficult to implement on commoditized products/services.
How much do you charge for a haircut?
Is it $5, $10 or $25?
Whatever your price is, there is a value attached to that price.
You won’t charge $25 if the customer thinks they are getting an extremely basic hairstyle.
You won't charge $5 if the customer thinks they are paying for a high-end and complex styling.
The price of your product or service has more to do with the value you are providing than anything else.
So in order to optimize your product pricing - you need to keep in mind 2 things:
1. What is the value you are providing to your customers in terms of time saved, money earned, or money saved. For instance, if you are selling a widget which will save the customer 1 hour of their time every day. That means you can save them about 20-25 hours per month. How much is that worth to them?
2. What is the highest dollar figure your customers will pay without decline in demand. Generally a wealthier person or larger company will value their time more than their cash reserves and vice versa.
Now you can test the waters by offering the same services to two groups of customers. Notice the sales for a week or two. Pick the price which gives you more net revenue.
Rinse and repeat.
Pricing a product is “probably the toughest thing there is to do,” according to an expert. Pricing your product usually involves considering certain key factors, including pinpointing your target customer, tracking how much competitors are charging, and understanding the relationship between quality and price.
You can read more here: https://www.inc.com/guides/price-your-products.html
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Your question's scope too wide to discuss, probably will receive many methods but may confuse you further.
I would highlight to you an underlying principle of pricing in the commercial world:
"A price is attached to a product as an effort/ cost the buyer willing to pay to exchange the product. Pricing, on the other hand, is the intention of the seller to attract the buyer to buy the product so that the buyer can be benefited in the way the seller wanted to."
Thus, if you are clear of what you want the buyer to be benefited, you will know what price you want to set (ideally).
Based on the cost + plus or market value approach, you can match with your ideal price to close the gap to make your pricing more reality and competitive at the same time.
Firstly you have to know your customers,by that I mean the product that you are selling is aimed for who?The youth,the elderly or the middle aged people.For an example if your product is for the younger generation then you prices should accommodate them,but at the same time remember that you are trying to make a profit here not a loss so you prices should be reasonable.If it's for the elderly people then try to see if your product will have an impact on their lives or not if so then I don't think there is a problem in raising your prices,again remember you don't have to lower your prices because you are running a business and trying to generate income.And another thing when you were drawing up your business plan what price range did you think of?After all this is your Baby so you must have thought about the price,how much money you will make per annually.
Rule #1 - forget about cost-plus pricing. Costs are how you measure the effectiveness of your pricing, but shouldn't be use to set prices
Rule #2 - think about value. If you're B2B, work out how you a) increase customers revenue, b) reduce customers costs or c) minimise customers risk (all can be quantified). Then work out what % of the value you want to capture in your pricing.
There are ways and means of arriving at a cost that is beneficial and gives you tangible profit. In terms of hard product say furniture , appliances etc I am going to take you to a principle in marketing known as loss leading. This is where you look at the purchase price of the product and then check your competitor's price. You are prepared to create a price which is less than your competitor but enough to give you a good profit, thereby taking the lead in price market . This is a really good strategy if you purchase items in bulk or wholesale where you get them at a cheaper rate.
Another way to mark up your pricing is. The cost price plus your time plus the margin of profit you have in mind. When you have created that price you need to also match your competitor to see if you are on par, below or above. If it is above and you are satisified that you want it to stay at that price you must prove to your buying public why they should purchase your product above the other person's when it is the identical thing being offered. At this point you must be prepared that areas such as customer service is way above the competitor. I personally will buy something even if it is more expensive as long as I am receiving excellent customer service. Other areas to look at is the whole feel and ambiance that I get when I zoom into your business.
If it is an intangible service that you are offering you must be able to measure it by the passion that you have for it. That passion will drive you for excellency and professionalism.
Barber and hair salon: Measure this by the price margin within your area. Considering all the products you are using and create your price margin. Try to stay within that or just a little above.
In all these set up , never forget that your business reflects you and persons are looking for quality to go with the quantity. Don't short change them. Give value for money