3 Things to Know Before Pricing Your Product
Pricing may indeed be one of the most difficult aspects of starting a business.
There’s always some level of discomfort (am I charging too much?) or disbelief (will someone pay that much?). But having the right pricing strategy is crucial to your success.
If you’re not pricing for profit, it’s like pouring water into a leak bottle: no matter how many sales you get, the math will never add up. If you want to build a business that’ll essentially run on it own, then you have to know how to play the numbers game. And that means thinking about your bottom line first.
So let’s establish a few ‘universal laws’ in business that should help make your decisions easier.
1. IT TAKES MONEY TO CREATE YOUR PRODUCT.
Whether you’re making it by hand or having things shipped in, materials, labor, and overhead (even if you’re working from home) all add up.
And you’re not just handing out product for free. Pricing correctly is your return on investment.
Everlane’s ‘radical transparency’ is a perfect example of accounting for costs of creation as well as profit in their pricing structure.
2. IT TAKES MONEY TO PROMOTE YOUR PRODUCT.
People can’t buy what they can’t see.
Visibility can make or break an online business.
Pricing correctly gives you the ability to reinvest in advertising and other initiatives to reach more of the right people and get more those people to the checkout page.
By the way, it’s recommended that you reinvest at least 30% of revenue towards your marketing budget.
3. IT TAKES MONEY TO EXPAND YOUR OFFERINGS.
Business is a cycle.
You research. You prototype. You test. You produce. You sell. You review.
Then you do some more research.
Pricing correctly can be the difference between a commodity and a brand. Modern Citizen, an online shopping destination, started in 2013 with a womenswear collection.
Now, they’ve expanded to offer a full complement of options including bags, shoes, jewelry, and even a range of home goods.
So the decision becomes less about how much you charge and more about how much you can accomplish.
If you want to be able to do more, if you don’t want good ideas to just gather dust, cash flow is crucial to your ability to create.
Focus on being the best solution and attracting the right customer. The price tag will be outweighed by the value you bring, every time.