How to price your Product or Service?

How to price your Product or Service?

“A Product or Service is the creation or the production that an organization produce to satisfy the needs and wants of the customers.”

Yours Products and Services are the elements that brings money to your organization. Organization has their own freedom to fix price to their products and services. Organizations can either choose “low price larger quantity concept” or “high price lower quantity concept”. Whatever the concept the company choose, it should suit the product, demand and the business strategies of the organization. Therefore, deciding the correct price for your product and services are more crucial and important.

There are few important factors that need to be considered, when pricing your goods and services.

01. Cost

Cost is the expenses that the producer need to bare while producing goods and services. As the main objective of selling products and services are to gain profit we cannot sell the products to the customers lower than the expenses or break even the expenses.

Here the price need to decide in the “Cost-plus pricing” method. This standard method of pricing in business seeks to first determine the cost of making a product or a service, and then add an amount to represent the desired profit.

The cost calculation should be included with all the cost types mentioned below.

Material Cost – These are the expenses that done for the materials/goods that used to generate the product or service. A bakery would need to factor in costs of flour, yeast, butter, etc. A vehicle repair business would tally up the cost of supplies, such as brake pads or spark plug, which are being installed by service people. You may want to include the material list with your estimate in bidding for a job.

Employee Cost – This is the cost of direct labor you hire to provide a service. This can be the wages or the salary or other payments paid for a particular employee for the generating process of product and services.

Overhead Cost – These are the indirect costs to your business in providing services to customers. Examples include labor for other people who run the firm, whether administrative assistants or human resources personnel. Other overhead costs include monthly rent, taxes, insurance, depreciation, advertising, office supplies, utilities, mileage, etc.

02. Prices of Competitors

If a profit oriented organization trying to exist in the corporate play, definitely they should keep their eye on the current competitors’ and the future competitors’ marketing behaviors. Pricing is a great strategy that can be used against the competitors as price will be one of the main element that effect for the customers’ buying decision.

At most of the events, the sellers/service provider and producers have to compete on price to win a customer. When organizations face such circumstances, building a long-lasting bond with the customers is very important. Customers should feel that they are receiving a value and quality more than a typical service or a product. And that will make a path to retain the loyal customers among the competitors with the similar products and services with the same price but with the typical attraction.

03. Perceived value to the customers

Setting prices for the good are not a big issue because the when setting prices you only need decide to use keystone pricing, which generally takes the wholesale cost and doubles it to come up with a price to charge and account for your profit. But for a service the price will be depended on quantitative factors like expertise of the service provider, perceived value of that service etc.

After concentrating to the above facts you might come up with best the price but it’s not constant. You should change the pricing according to the PESTEL factors. Need to concentrate on few factors when increasing the price as well.

  • Increase the price if customers willingly say that you are a bargain (Lower price against the service’s or the product’s quality and value).
  • Don’t raise the price once in a huge amount.
  • Increase price when competitors increasing the price.
  • If you are providing more than one service do not increase the price of the all in once. Be discreet.

Current corporate entities need to deal with set of customers that has much awareness on goods and services, brands, market behaviors and competitive prices of similar products. Organizations hard to fool around them and any foul play will damage the reputation of the organization.

On that note, organizations should be wise enough to compete with their competitor in an ethical manner and make their marketing and pricing decision to create a long-lasting relationship with their customers.