I have lots of clients coming to me every day for advice on how they should price their product or service. And these are the questions popping out most frequently:
- How should I price my products?
- Should I have a system?
- Can I price my products/services based on gut feeling?
Pricing your product or service is very important. Get it wrong, and you’ll be wasting your time instead of making a profit.
No pressure though.
Stick around for this 2 Minute Accountant episode and learn to get the price right for your products.
1. What is your product?
Understand what your product really is.
Ask yourself: Is your product what you’re actually selling?
Let’s flip the questions a little bit to: What is the emotion your product offers your clients? Is it peace of mind, security or stability?
The truth is, every product is more than the actual object or service it represents. Most of the time, there’s an emotional experience your product or service can provide to your clients. Identify it, explore it and create the emotional link between your product and your client.
Here’s what I’m talking about. For example, in accounting, we have tax returns.
What do tax returns really provide for our clients? Aren’t we providing peace of mind, surety and financial stability?
Tip: Identify and understand what you’re actually providing with your product or service. Remember, there’s always more than just the physical product you’re selling.
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2. It’s all about the value!
What is the value of your product/service?
For example, I have a client who makes hydraulic hoses that are used for industrial purposes of listing containers off ships. He’s offering a hose for $10. But if his hose isn’t working for two hours, it misses 23 ship containers coming off the load.
So, by having his hydraulic hoses working 24/7, he actually provides security that the shipping company will not lose money by being unable to offload the containers. THAT is the value of the hoses.
Tip: Take a moment to identify the real value of your product. Start with what makes your product/service unique and go from there.
I see so many companies underestimating their products’ value and selling them too cheaply. You might not think about it, but this is one of the reasons a lot of companies go bust.
3. Get all your costs right
Understand exactly what makes your profit or your loss. And if you’re going to lose money on it, make sure you’re doing it for the right reason.
Tip: When you price your product, think about the margin you want to make.
Here’s how to figure out your gross margin:
- If you’re selling your product for $10, but it only costs you $3, that’s a 70% gross margin.
- If you’re selling for $10 and it costs you $5, then it’s a 50% gross margin.
Friendly advice: Always make these calculations before starting to price your products.
One more thing… just because someone else prices their products a certain way, doesn’t mean you have to price your the same way. At the end of the day, you can charge what you want, if you are able to effectively communicate the real value of your product or service.
So how do you price your products or services?
I hope you’ve got some good ideas now on how to improve your pricing process. Remember, you’re the one knowing your products better than anyone else.
Now start pricing your products with confidence!
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Let’s get started!
Whether you need someone who can do the number crunching for you, or you need business advice from an expert, my amazing team at Shuriken Consulting and I are here to give you a helping hand. We’d love to hear from you! Let’s get in touch: