Do you struggle with setting your prices?

There is a simple mistake that most business owners of products and service providers make.

I used to, but once I learned how to set my prices properly it totally changed my profitability.

Dumb Pricing Mistake #1 is pricing your product and service based on its cost.

Now don’t get me wrong. You have to know your costs.

Costs are expenses like labour, materials, shipping, overheads like electricity, studio rental, internet, computer, motor vehicle and so forth.

How to Fix it Pricing Formula.

Pricing a service or product has two ends to the formula.

One end is what the product or service costs. The other end is what the product or service will sell for in your marketplace, to your perfect customer.

But here is what I’d like you to do.

Start from the selling price first. 

Work out what your product is worth in your marketplace to your perfect customer. (See below for an example).

Then apply this simple formula.

The Selling Price – Product Cost = Profit.

Example: How do I know what my product is worth?

I'll walk you through a step by step of how I determined pricing for my product-based business. In my previous business, we designed, manufactured and sold (primarily online) handbags and women's travel accessories. 

1. The first step is to collect data. To establish some base pricing  I used Google to search for websites that contained the same types of products that I sold. I looked at each site to determine who their customer was, and eliminated any sites that were targeted a different customer. This took me from an initial grouping of 10 competitors down to 5. This elimination process can't be underestimated, because my target customer has needs and desires specific to them.Once I narrowed to 5 websites, I combed through each one looking for very similar products. For example, I would check their large leather shoulder bag  with 2 straps, a zip opening and 2 outside pockets against my large leather shoulder bag with similar features.
2. The next step was to collect information on the competitor's 'unique value proposition'  of their products. What makes them different to me, and how would that impact the price of my product in comparison.
3. I also looked at other elements like cost of shipping and handling, credit card fees, speed of service and return policy.

Using this information I was able to put some pricing on my products, but not with the idea to make them cheaper. In fact some of the products I increased the price, but offered a bonus like free shipping, or a value-add product.

Do you struggle with setting your prices?

Jenny Spring

P.S. Thanks Derek Halpern, I totally ripped off your title idea. You are awesome!