Pro: This strategy can be effective if you can negotiate a lower cost per unit from your suppliers while cutting costs and actively promoting your special pricing.For example, in industries with highly similar products where price is the only differentiator and you rely on price to win customers. This tactic is usually driven by the product value. Cons: Cost-plus pricing doesn’t take into account market conditions such as competitor pricing or perceived customer value.Ĭompetitive pricing: beating out the competitionĪs the name of this pricing strategy suggests, competitive pricing refers to using competitors’ pricing data as a benchmark and consciously pricing your products below theirs.It can provide consistent returns should all your costs remain the same. All you have to do is add a percentage on top of it to set the selling price. You’re already tracking production costs and labor costs. Pros: The upside of cost-plus pricing is that it doesn’t take much to figure out.Here’s what the formula looks like:Ĭost ($45) x Mark up (1.35) = Selling price ($60.75) You could add a 35% markup on top of the $45 total it cost to make your product as the “plus” of cost-plus pricing. Let’s say you just started an online t-shirt business and you want to calculate the selling price for a shirt. You make the product, add a fixed percentage on top of the costs, and sell it for the total. Common strategies include:Ĭost-plus pricing, also known as mark-up pricing, is the easiest way to determine the price of a product. Once you’ve got the above items figured out, you’ll want to choose a pricing strategy. For example, some customers may be more cost-conscious for clothing while others are happy to pay a premium price for specific products.Ħ common pricing strategies for small businesses After all, your hard work will go to waste if you don’t have potential customers.Ĭonsider the disposable income your customers have. Your objective should not just be identifying a healthy profit margin, but also what the target market will pay for the product. This step is parallel to the previous one. Ask yourself: What is my ultimate goal for this product? Do I want to be a luxury retailer like Snowpeak or Gucci? Or do I want to create a chic, fashionable brand like Anthropologie? Identify this objective and keep it in mind as you determine your pricing. It’ll help you navigate through any pricing decisions and keep you heading in the right direction.
Think about your commercial objective as your company’s pricing guide. Your product pricing will take these costs into account to make your business profitable. How much does a bundle of materials cost? How many products can you make from it? You’ll also want to account for the time spent on your business too. If you create products yourself, you’ll need to determine the costs of your raw materials. If you order products, you have a straightforward answer of how much each unit costs you, which is your cost of goods sold. To figure out your product pricing strategy, you’ll need to add up the costs involved with bringing your product to market.
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Whether it’s the first or fifth pricing strategy you’re implementing, let’s look at how to create a pricing strategy that works for your business. Retailers often test and change their pricing over time, depending on variables such as demand and market conditions. Your pricing strategy is based on your target audience, what they are willing to pay, and what your competitors charge for similar products. To do so, you’ll need to examine different pricing strategy examples, their psychological impact on your customers, and how to price your product. The art of pricing requires you to also calculate how much human behavior impacts the way we perceive price. But you also need to take a second step that goes beyond hard data and number crunching.
Humans, on the other hand-well, we can be way more complex. That’s because numbers behave in a logical way. In fact, that may be the most straightforward step of the process. Even then, setting a price for a new product, or even an existing product line, isn’t just pure math. Retailers have to consider factors like cost of production, consumer trends, revenue goals, funding options, and competitor product pricing. Ultimately, every small business will have to do its homework. Similarly, when a product has a high price, a retailer may see fewer sales and “price out” more budget-conscious customers, losing market positioning. A low price isn’t always ideal, as the product might see a healthy stream of sales without turning any profit. Setting the right prices for your products is a balancing act. Pricing is the act of placing a value on a business product or service.
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