11 Effective Ways to Price Your Product or Service

If you want to succeed in your business, one of the best practices you can implement is to price your product or service effectively. With so many different pricing strategies available, it might be challenging to determine which price is right for your product or service. 

There needs to be a balance in between. Pricing too low or too high might hurt your revenue or make customers rethink doing business with you. 

In this article, we’ll explore which methods you need to follow to effectively price your product or service. 

1. Competitive Pricing 

Competitive pricing models allow you to strategically set your product prices based on what your competitors are selling. For instance, if your competitor’s product price is $60, you can choose a higher or lower price as a good starting point. 

This is where branding importance joins the game. If your branding prices are different from your competitors, you can easily raise the prices by a little. This method is most effective when pricing products are available to consumers for some time. This way, businesses and consumers have a general idea of how they value these items. 

2. Profit margin pricing 

Your profit margin is known after you’ve added up your variable, labor, raw materials, and overhead costs. What’s the total bundle cost? How many products can you create from these costs? This gives you an estimate of your profit margin. 

Every time, it’s also important to figure out how much your customers are willing to pay before you set a price. Market research plays an important role in figuring out how much customers are paying to competitors. 

Moreover, you need to also know what your goals are in earning your profit margin after you’ve calculated your total costs. For example, let’s say you are targeting a 15% profit margin, you should consider two important things: 

1. You need to calculate all of your costs and then determine what your realistic profit margin will look like
2. You need to analyze your competitors and make sure that your price range is still fair and acceptable. Avoid charging twice the price of competitors, especially if your product isn’t that much better. 

Many businesses will fail in analyzing their competitors, so it’s important to always take a step back before you take a step forward. 

3. Profit margin calculator pricing 

A product pricing calculator helps you find profitable selling prices, which can significantly help you find out how pricing points affect your business. Therefore, browse through the web to find a profit margin calculator and add your total product costs, and the percentage markup for determining the final selling price. 

To start out, it’s best to add your gross cost for each item and what profit percentage you’d want to make on each of your sales. You can always play around the numbers to see what is going to be the best fit for you. If you can charge a higher price, it’s best to increase your markup. From that moment, you can set prices and profit from each sale. 

4. Learn from competitor's pricing model  

There are plenty of pricing strategies that are used by product producers. However, a common method used is dynamic pricing. Dynamic pricing sets prices based on customer demand cost-based pricing involves adding all costs that are associated with making your product and then marking it up with your target margin. 

As we mentioned before, you can either set similar prices like your competitors, but never set prices that are more expensive than your competitors. 

5. Price elasticity 

While many businesses think offering lower prices is a great way to get more customers, this isn’t entirely true. You can’t always lower prices as it can hurt your long-term revenue and if you continue to lower them, it can significantly hurt your business reputation as well. 

However, sometimes, you can lower your prices to take advantage of lower production costs. Price elasticity is calculated by looking at how your order volume and prices are. If demand increases, prices increase. However, if it drops, prices will drop as well. 

Therefore, it’s important to know that if you do lower your prices, it might help you in the short term, but definitely won’t do anything good in the long-term. 

6. Cost plus pricing 

Cost-plus pricing is also known as mark-up pricing which helps you learn more about what the actual product price is. This means that you sell the product and add a fixed percentage on top of these costs, and then, include the final price. 

Cost plus pricing is a super easy way of determining your final price since it’s set after you track your labor and production costs. Cost plus pricing includes four key elements: 

1. Labor costs 
2. Shipping costs 
3. Overhead and marketing costs 
4. Material costs 

Therefore, after you calculate these, you can include your final price. A good example is Ali Baba. If you purchase an item, you’ll see that on their website, they’ll add the total costs at the end. 

7. Price skimming 

Price skimming strategies include having higher prices at the beginning and lowering it over time as competition in the market rises. This is beneficial for you as it has high short-term profits. 

The main goal here is to make sure that revenue is driven when competition is low and product demand is high. Apple uses this type of pricing model and you may notice that its prices at the beginning are quite high, but start to drop over time. Also, pricing skimming strategies are great when there is product scarcity. Low-supply products that are high in demand also work great with this strategy. 

While this pricing strategy does have its advantages, it does attract loyal customers, but at the same time, it might not be the best strategy for crowded markets unless you have features that help you easily stand out. 

Most importantly, if you leave negative impressions in the earlier stages, or drop prices too much, it will have a negative impact on your business. 

8. Discount pricing 

We all know that everybody loves a coupon, sales, season pricing, and other related discounts. Statistics claim that roughly 28% of buyers will usually seek a discount before they make any purchase online.  

Discount pricing models have many benefits and it does have a positive impact on your store, getting rid of unsold inventory, and attracting more price-focused customers. 

The only slight downside of this pricing model is to avoid using it too often. The reason is that it can give your business a reputation of being a ‘’bargain’’ seller. You don’t want to be perceived this way as it might hurt the long-term benefits of people purchasing your products at regular prices. 

9. Penetration pricing 

Used mostly by new brands that are trying to get into a competitive market. This is because it introduces a new product at an extremely low price to gain market share and increase its price over time. 

The pros of penetration pricing are that you get to stand out from others in a crowded marketplace and improve your brand awareness. As time passes by, you can easily gain new customers and attract some from competitors. 

The only downside is that customers might get used to low prices and when you increase them over time, you may be raising your risk of losing customers. 

10. Keystone pricing 

This is a strategy used to double the wholesale price from the retail price (wholesale price x 2 = retail price). For example, if your product costs $25, your retail price would be $50. 

Keystone pricing is great and works as a simple start, but it depends on the product you are using and sometimes doubling this price might be risky for sales. Therefore, you need to pay close attention to product demand. 

11. Premium pricing 

Premium prices are labeled to be much higher than competitors and can only be done when they give customers a prestigious and luxurious first impression. For example, Apple can achieve this since it offers premium products and presents a luxurious look to customers. 

However, this pricing model can’t be used by companies that don’t offer luxurious products. Therefore, it’s important to first know your target audience and set prices later on to make sure you aren’t making unnecessary mistakes. 

Premium pricing strategies strongly dictate a customer’s impression of a business and its products. Customers will see your products as different from competitors and guess what? You have a larger space for generating a higher profit margin. 

The slight downside of premium pricing plans is that they might be challenging to implement since it strongly depends on what kind of target audience you have. If your target audience is price-sensitive, this pricing model won’t work. 

Your pricing strategy will depend on your target audience 

As we come to our final words, something you need to know is that your pricing strategy will strongly depend on your target audience. It all starts with calculating your costs and leveraging your pricing model to see if it’s in order with your target audience. 

Highlight the importance of your pricing approach with market trends, customer preferences, and your unique value proposition. By analyzing your target audience, competitors, and adding up your total operational costs, you can set prices that will be in line with your product and service quality and remain effective as your business continues to grow.