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Product Pricing – Some Common Mistakes

Pricing products and services is the number one challenge for any business.

Regardless if you are already a well-established business, or a startup, pricing is a very sensitive area especially for low-margin, highly competitive niche markets. Most pricing concerns point to one factor – risk. High prices can put your product or service out of the reach of the market on the other hand if your price is too low than you run the risk of cutting your own profit margins.

The thing to consider is that with better information about the market situation and factors, risk can be either minimized or totally eliminated. Setting a price therefore requires gathering as much information as you can about your target market, potential clients and your competitors as well.

Things to Avoid in Setting Prices
  • Pricing your product too low and undercutting prices. Business is all about making a profit which is why you need to set your price accordingly otherwise your business will fail. Making your profit from the price-conscious sector of the market leaves you no other way to go but lower which is a bad business practice.
  • Never use the same pricing margin structure for all products. If a product moves fast, you can lower the margin and make up for the shortfall in the volume of products sold whereas if the product is a slow mover, you need higher profit margins. However, you should find ways to strategically add value and increase profit margins.
  • There is a world of difference between margin and markup. Margin is always based on sales price while markup is always based on total production cost.
  • Never forget to factor in all production-related costs in order to correctly every at the price. This includes credit card processing fees, delivery or shipping costs, and even postage and handling. All these can impact your company’s bottom line over a period of time.
  • Do not do what your competitor is doing. Do your own market research and use your own strategies in order to better increase, defend and hold your share of the market.
  • If you are using a commission-based sales force, the more you should be aware of your products’ margin and mark-up levels to avoid paying sales agents’ commissions out of your company’s revenue streams.
  • As much as possible avoid discounting but always be on the lookout on how to add value to your product. Discounting impacts your company’s profit margins as it also contributes to increases even if the product prices as discounted. Looking for ways to add value to your product or service means you are in a position to give away something to your customers that won’t come out of your profits.

Avoiding these pricing mistakes and pretty soon you will discover that you would have mastered the most problematic angle of any type of business. Although you may not always win the pricing battle, you sill surely have profits that would make your business stay afloat if not on top of the competition.


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