Right Pricing of the Products with the Right Value

Pricing products or services is one of the most important decisions for each entrepreneur. And unfortunately, setting a fair pricing is a delicate task. But if you carefully follow the five tips that follow, you will be able to get out of this tough ordeal without the hassle.

  1. The perception of the value of your offer

What about the perception of the value of your customers, of your offer of products or services? Have you ever polled them?

This first tip will allow you to establish the maximum price at which you can sell your product or service. Keep in mind that it is the perceived value that counts and not the real value. If the true value of your product or service exceeds the perceived value, you must be able to change the perception of value through a new communication strategy.However, until the perception of consumers changes, this factor will cap your maximum selling price. You have to Learn to Price on Value.

  1. Competitor prices

If you sell a product or service similar to that of your competitors, you will not be able to charge more than the competition significantly.For example, a difference of only a few euros will significantly change the distribution of market shares.

But if your product or service is different from your competitors so that at least some of the customers think it is wanted, you might be able to offer a higher price than your competitors.One of the main reasons for business marketing spending is to ensure that clientelescomprehend the details that differentiate each offer from the market. This makes it possible to fix much more finely the price of the product or the service compared to its global value.

  1. The cost structure

It is first necessary to focus on variable costs. Variable costs increase with increasing incomes (for example, raw materials or direct labor).Except in some cases, variable costs define the floor price. If the price is lower than the variable cost, then the company will lose money on each unit sold, and this situation is not sustainable with the increase in sales volumes.

The price formula minus the variable cost is called the variable contribution, which is the amount of money you make on each unit you sell.Then you have to focus on the fixed costs. Fixed costs are constant according to the variation of the income curve. For example, fixed costs are represented by rent or overhead.

While all costs are variable with a significant increase in turnover, these changes are much smaller compared to changes in variable costs.

The fixed costs divided by the variable contribution equals the number of units you have to sell to reach the equilibrium point of the company. If you operate a service business, consider the number of units sold as the number of hours billed.

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