The selling price is the price you take for your goods and services. Setting a selling price can be challenging.
The selling price is what clients have to pay for your products and services.
What you need to know to set your selling price
Your selling price—what you charge for your goods and services—should be higher than your cost price. Cost price is what it costs you to make your products or provide your services.
Cost price includes both direct charges such as raw materials, delivery costs, labour and so on, and indirect charges such as rent and electricity.
Once you know your cost price, it’s a little easier to set your selling price.
Next, it’s a good idea to do some market research to figure out what your competitors are charging for their products and services. It’ll give you an idea of how much you can charge, and it’s also important information if you want to position yourself as the most affordable alternative, or as the most exclusive one.
You can also interview potential customers to figure out what they’re paying today—if anything—for a similar product or service. Note that it’s not a good idea to ask the clients directly what they would be willing to pay for your product or service; It’s difficult to give an accurate answer to a hypothetical question, and the artificial conditions of being in an interview might influence their response.
Overall, you should aim for your revenue to exceed your costs. Then your business is making a profit.
Different pricing strategies
- Cost-plus pricing: this means that you figure out your cost price and then add a markup. This is easy to work out, but doesn’t take into consideration the market, customer expectations, or competitor pricing.
- Competitive pricing: This means pricing your products and services so that you can compete with other businesses that provide the same products and services. This can be difficult to do if you have a lot of costs.
- Psychological pricing: This includes tactics like charging 9.99 instead of 10.00 or showing the original price next to a discounted price.
- Dynamic pricing: This pricing strategy involves reducing and increasing prices in time with supply, demand and competitor pricing. You can also adjust your prices at certain times of the year, for example at the start of the year, to encourage customers to switch to you.
- Value-based pricing or premium: With these methods, you price your products and services according to their perceived value. If you sell luxury items or have a strong brand, customers might be willing to pay more. You need to gather market info and user insight to figure out what you can charge. With premium pricing, the fact that you’re charging more than your competitors can be a selling point, as long as you have a strong brand.
- Bundling: This is when you sell two or more items together, often at a lower price than the items would cost if you bought them separately. You have to make sure that all the items in the bundle offer value to the customers.