Pricing?

[pcbres16]

I am a little stumped on how to price my items. They are advertisements in an eNewspaper. My over head is $8.99. Is there a specific formula to follow where I can plug in my variables to come out with a price to use? Basically what I am asking is how do I figure out what price to set with out any labor to account for and only 8.99 in over head?

The theory that I am working right now is take every price from each of my competitors (we'll say there are 3)and average them together, do this for each firm. Then, take the three averages, add them together and divide by 3. Will this get me a price to start with?

If any of you have a formula I could use please disclose it.

Thanks.

[JohnYE]

Hi pcbres,

Great question. What pricing always comes down to - regardless of what you're selling - is one simple question: what are people willing to pay? Ultimately, the market will set your price. If your product or service is unique in some way, the market is not necessarily tied to what your competitors are charging. If it's the same, or perceived as being the same by your customers, then your method of pricing by averaging your competitors' prices seems sound.

It sounds like you're just starting out with this venture, so you have to be kind of careful. If you price yourself too low now and become known as the low-price leader, that can be an advantage, but you might get stuck there and not be able to raise prices when you want to or need to. Pricing yourself in the middle of the pack or slightly higher allows you to adjust in either direction as necessary.

Hope that helps some. Keep us posted.

To your success!
John


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[SethKravitz]

The theory that I am working right now is take every price from each of my competitors (we'll say there are 3)and average them together, do this for each firm. Then, take the three averages, add them together and divide by 3. Will this get me a price to start with?

I think your formula is just fine. To get started you just need to launch and get it out there. You are not going to find the right price through a formula at this super early stage in your company. The only way you are going to find it at this point is trying out the price you feel is the highest value for the customer while still covering your expenses and that's your starting price.

Try it out, look at the results, maybe adjust the price or not, and keep on trucking. You won't know until you try.

[DeonKrey]

All good ideas!

To add, here's a good article from Ezine which is worth the read:

How to Determine Value of Products and Services

Pricing isn't about how high or affordable it is - it always portrays the VALUE it offers.

[rogercbryan]

How many units do you sell at a time? Is this a single sale item or do you need to sell them in bundles of say 100-1000 units?

Here is my formula for pricing single sale items (that you are going to sell a lot of) online. This would be different if you are not selling online.

Step 1: Come to market with a price that you would like based on profit
- Let that price sit for 7 days
- If the item sells in under 48 hours raise your price by 10% and list your second item
- If the item does not sell in 7 days then lower your price by 10%

Step 2: Second Item (or first item repriced based on not selling in 7 days)
- Let the price sit for 7 days
- If the item again sells in less then 48 hours raise your price by 20% and list your third item
- If the item does not sell in 7 days lower your price by 20% (even if you'll loose money)

Step 3: Evaluation
- You can keep repeating this process until you see a plateau of sales (sales taking 3-7 days per item)
- When you have this plateau you can then list multiple items all at the same price point to test for market saturation
- If you make your first sale below your break even point then you need to slowly bring the price up 2-5% at a time after your first sale
- If after 10 sales you are still below your break even then you do not have a competitive product

Notes
- Basing your price on your competitions makes absolutely no sense! What if your product is far superior how will you know? How will you take advantage of your max pricing opportunity?
- A scaled and measurable pricing approach is the best bet

This is also a great way to test market a product before going in to bulk sales. Having a proven sales history on single units is a huge selling point to wholesalers. "Hey I've sold 100 of these units individually for an average of $8.75 so I'll sell you 100 for $750 and you'll have a margin of $125" - People will buy with these numbers.

People say pricing is hard... its not.. at all! You just need a system and a formula to track sales in a manner that lets you find your optimal price.

[Manny4life]

There is no set formula for pricing in retail, however, there are certain factors considered when pricing an item. They are

1. What are your customer willing to pay?
2. What is the break-even point; are all costs covered? This is very important (Fixed cost, since Variable costing is irrelevant)
3. How much profit do you want to make? (Here is where you calculate your Gross Margin Profit and % off the cost)
4. What is your competition charging? (What is your competitor charging? That depends on how much they buy to how much they sold)

Using retail/accounting calculations based upon financial ratios,

Selling Price is ===> Product Cost (including overhead)/(1-Gross Margin %)

Since you have $8.99 overhead and that is your cost, assuming you want to make a 30% gross profit, that would be

$8.99/(1-30%)= $8.99/(1-0.30) ====> $8.99/0.70 ===> $12.85

Hope that helps.

[Advertising Swami]

Get this book "How To Sell At Prices Higher Than Your Competitors" by Steinmetz

Best explanation of good pricing tactics I've seen. Well worth your time to read it.