Business plan: how much to sell your product or service for?
Deciding how much to sell your product for is probably one of the most difficult business decisions you’ll have to make. Set the price too high, and nobody will buy it; settle on a price that’s too low, and it could end up disastrously for your cashflow. Watch the video below and read our tips on how to find the right pricing for your product.
Look at what’s viable for you
First and foremost, look at the costs of running your business – the rent of your workplace, purchasing raw materials, manufacturers, time, everything – and consider what the product needs to sell for in order for you to break even. Then think about how much more you can add to the price to make a reasonable profit. If you’re finding it difficult to reconcile these sums, you might need to take another look at how you’re bringing this product or service to the table.
Look at what your competitors sell it for
It’s always informative to see what price points your competitors are using for similar products and services. However, it’s not all about price – it’s about the offering too. Don’t undersell (or oversell) yourself, and be aware of how your own unique offerings influence the price point.
Validating your business is a great way to discover how much people are willing to pay for your product. A crowdfunding campaign, for example, can be a useful way to gauge a price point, especially if you’re still deciding on your final offering, as you could test out various products and price points simultaneously - did you sell out of the phone case for £10, but have a hard time shifting pledges for the luxury version at £30?
Other methods include surveys, either online or in real life, or setting up a simple landing page where people can pre-order your product.
Err on the side of caution
You don’t want to overprice and end up being too uncompetitive, scaring off potential customers to cheaper alternatives – but equally, if you underprice and it’s unsustainable, how are you going to justify raising the price to customers who’ve already purchased at the original price? It’s better to overprice and lower the price, rather than going the opposite way.
Understand other business priorities
It’s not all about profit. If your priority is visibility, and you’re willing to lose a bit of profit in order to ensure you have a bigger market share, that’s a priority that factors into your decision. If you want to be seen as a luxury brand, setting your price too low can give off the wrong image. Pricing doesn’t exist in a vacuum – consider how it aligns with your long-term strategies.
Think about how short-term pricings can factor in
Your price probably won’t remain static over time. In particular, at the start of your business or at different times of year, you might consider discounting in order to bring in more customers. If discounting, ensure your business is still financially viable. If you’re aware it will result in a short-term loss, ensure you’ve considered how you’ll cope with this and that the benefits will be worth it.