How do I set a selling price that customers consider to be good value whilst still making a reasonable profit?
Value, that’s the big thing, isn’t it?
Knowing what the profit your product or service will make, that’s about doing the numbers.
How much it costs to produce.
What you sell it for, minus tax and expenses, is your profit.
If you know what revenue you need to produce to achieve a profit, it should be easy to set the price.
But it isn’t!
You doubt whether anyone will pay that price, you question whether your product or service is worth it.
You compare your pricing to competitors but worry that you’re not giving enough value. So you give more.
Which is a thing to be celebrated, really. It means you care about your customers. You want to make sure that you provide real value to them.
So how do you know if you’re giving your customers great value?
Some of it really is going to be gut feel.
What would you pay for it?
Put yourself in their shoes, think like them, what do you think they’d say about this?
But using numbers makes things easier. Numbers just are, they’re pretty objective.
If you know what profit you need to make and how many you think you can sell, then the price has to have a minimum suggested selling price.
You can’t sell less than X because you won’t make enough to cover your expenses and make a profit.
So start there.
- Work out what profit you want to make in your business
- Add up all the costs that go into making the product or delivering the service.
- Estimate how many you’re going to sell
- Deduct the tax from your revenue
- Now set the price to give you a profit.
You can do this with physical products, services and digital products.
If it’s a service or creating something new, like an online course or membership, when pricing it out, don’t forget how much it costs to create, including your time as well as ongoing costs.
When you can break it down like that, it becomes a much more objective decision, which is lot easier to step back from.
And then you test it!
You don’t have to be stuck with the price you’ve set if you’re not sure about it!
Offer it to a smaller section of people, if it’s easy to sell and you get rave reviews, you can put the price up to new customers and offer it out to more people.
Use digital tools like email to just let a select few people know, you can even try different prices to different sets of customers.
You don’t have to have created everything, or anything, before you offer it for sale.
If there’s not much to set up or you know you can move very quickly, then you could offer it out, get a sale and then create as you go.
Or if some things are going to take more time to deliver, you could offer future delivery dates or wait lists.
So, to recap:
- Add up all your expenses to create and produce the product or service, including salaries.
- Estimate how many you think you can sell.
- Work out what price you need to charge to make a reasonable profit.
- Test it out on real customers.
- Get feedback.
- Amend based on feedback
- Offer out to more people.
One of the beauties about being a small business owner!
You can test out offers and make sure they’re going to sell, that you’re going to make a reasonable profit and that your customers will buy before expending a lot of effort or money.
Which means you can be confident about the value your customer gets by getting feedback, testimonials and their actual willingness to buy!
Hope this helps and let me know what you think,
Cheers,
Karrie xx
