Setting the right price for your product or service is a delicate situation. You must find a price that will reflect your production costs as well as the value your customers place on your product.
1. Consider your production costs. These costs consist of both the fixed and variable expenses to manufacture or offer your product or service. Fixed costs include rent, salaries, property taxes – any expense that doesn’t change often. Variable costs fluctuate depending on the amount of goods produced or services provided. They include raw materials, hourly wages and sales commissions.
2. Analyze your market. How much are customers willing to pay for your product? Conduct market research to test your pricing strategy. See what competitors are charging. You may price your product higher than the norm if you offer better service than your competitors.
3. Evaluate your product’s uniqueness. See how closely your product resembles a competing product. Consumers will be reluctant to pay higher prices for your product if they can pay less for a competing brand.
4. Determine your product’s price elasticity. Your product’s elasticity is determined by whether price changes result in changes in demand. For example, if slight changes in price results in significant changes in demand; your product is considered to be elastic. However, if there is little change in demand even with significant price changes, your product is inelastic. The greater the price elasticity, the closer you should price your products to your competitors’ products.
5. Set a price. Take all these factors into consideration before making a decision.
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