The Do’s & Don’ts of Pricing Your Product

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Pricing Your Product

Before your hit the market, read our do’s & don’ts of pricing your product!

For starters, there are a ton of pricing models you could choose from as Intuit QuickBooks lay out in this post. From Freemium to Premium, you have to decide what’s right for your company, product and what fits industry standards. But there are a few things that are universal no matter which pricing scheme you choose:

DO

  1. Make sure your price covers all costs.

This may seem like a “duh” statement but all too often we see clients that don’t account for all costs when determining the appropriate price for their product. Think staffing, marketing and overhead, not just material costs. Know the appropriate markup to meet your profit margin goal.

  1. Lower costs to lower prices.

Remember, that the best way to offer lower prices is by lowering your costs. As you become a more efficient machine, (especially due to your awesome outsourced accounting team), you can look to lower your prices if that seems appropriate for your market.

  1. Also consider raising your prices.

Does the idea of raising your prices make you quiver? While you may see some push back sometimes it is absolutely ok to raise your prices. As Starbucks has shown us, if your value proposition is adequate it shouldn’t matter. Read more to know when it may be a good time to consider this.

  1. Perform market research.

Do you have a 500% profit margin when most of your industry peers are offering 300%? This is crucial research to have done ahead of time and to review periodically to ensure you’re competitive in your market. Don’t forget to also review prices when there is any inflation or recession in the economy or if you are entering a new market.

DON’T

  1. Ignore your cash flow.

Your necessary optimal cash flow should be paramount in determining what your price point will be, because as we know, your free cash flow is a number one metric to impress investors.

  1. Forget to review your prices periodically.

Make sure you are meeting your financial goals. Occasionally it may be time for a price increase. If you have a surplus of inventory then maybe it’s time to offer a sale. Do market research again. Some questions to consider:

  • What are your competitors offering?
  • How often do your competitors offer sales?
  • Has the demand for your product increased or decreased?
  • Are your customers making money from your product?
  • Have your target demographics altered in any way?
  • Does it make a difference what pricing model you choose?
  1. Overlook value.

If your product is comparable to your industry peers, then it makes sense to price your product similarly. But maybe your product offers more value than the competition. If that’s the case, your price should reflect that.

Have you recently reviewed your market and are about to raise your prices? Our post, Don’t Apologize for Raising Your Prices can help lead the way!

The start of the new year means exciting new changes for Red Granite.  Beginning January 1, you’ll also find us online at www.orba.com now that we’re part of one of Chicago’s most prestigious CPA firms, Ostrow Reisin Berk & Abrams, Ltd.  While we’re saying goodbye to our old website and company name soon, we want you to know that we’re still right here to serve all your bookkeeping, accounting, and strategic financial needs. In fact, with our ORBA colleagues, we’re positioned to offer you an expanded array of state-of-the-art services.  So set your sights high for 2017 and sign up to receive our latest blogs and newsletters.  Visit us today, we’re looking forward to welcoming you!

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