So, you’ve started down the path to entrepreneurship. You’ve got a great idea for a product. You know you can build it and you know people are willing to buy it, but at a what cost? Establishing the right price for your product is a key element in starting a small business off on the right foot.
Let’s take a look at the factors you want to consider before setting the price on your product.
Consider Your Costs
Before you can ever hope to establish a realistic price point, you need to calculate your cost of goods sold. Essentially, you need to determine how much it will cost to produce one single product.
This step is essential to ensure your business can stay afloat. If your price point falls below the cost of producing the product, you won’t be able to generate profit or sustain your business for long.
Consider Your Competition
Like any smart business person, you’ve always got an eye on your competition. How are they pricing their products that are similar to yours? Do some research. See which products might compete with yours and consider mimicking their pricing strategy.
If you hope to stay in business, you need to offer a compelling reason for consumers to choose you over them. If your price is far greater than theirs, without a viable quality difference, your potential customers have no choice other than to purchase your competitor’s product.
Consider Your Profit Margin
Let’s be honest—no one takes on the serious risk of starting a business without the intention of making money from it, right? You don’t just want to cover your costs, you want to be able to make a profit and potentially expand the business. This means you need to establish a sufficient markup above the cost of producing your product.
Different industries offer different markup ratios. Depending on the industry in which you’re operating, you could potentially mark up your product between 10% and 5000%.
While there are plenty more factors to evaluate before you set the price for your new product, these first few factors offer you a good starting point. And when you’re ready to expand your startup, we’ll be ready to help you with business funding so you can help your business grow.