Pricing can be one of the hardest things to get right when creating a new product. Price it too low and you won’t make any money. Price a product too high and no one will buy it. But how do you decide on your price?
We’ve put together a quick guide and a handy product costing calculator (download a free copy at the end of the article) to help you understand your pricing strategy and launch your product with an understanding of how much you can make.
Step 1. Research the market
First and foremost, you want to have a good understanding of the market you are going into and what other similar products or brands are charging.
Check out some brands with a similar aesthetic that you will be presenting and make note of how much they are charging for similar products. Different brands may have different pricing strategies so take into consideration your own goals. Depending on your:
- Target market
- Raw Materials
- Brand positioning
you may have to average out or make a guesstimate on where your product will fit in the market.
For more information on how to come up with a product idea, check out our article 4 Steps to start your product design process!
A quick note on premium pricing.
Depending on your brand positioning, you may be looking to create a more luxurious and established feel. In this case, creating a premium pricing strategy (increasing your price) can help set you apart from the rest of the market. Premium pricing (or more expensive pricing) has been shown to affect customer’s purchase habits and perception of goods and services.
Put simply, if you want your product to have a premium brand position, make sure you add a premium price tag to it!
For established products like t-shirts, shoes, handbags or exercise equipment, there are plenty of examples of different price points and options, however for newer or revolutionary products you may have to be more creative in your research.
A nice way to record this type of data is by using a Competitor Analysis spreadsheet to track what other brands are doing.
You can do this by participating in online product design forums, asking for feedback from social media channels or just checking in with your friends and family about what they would pay for your product.
Step 2. Understand your costs
Now that you know how much you should charge, you’re going to need to see if you can make any money.
This means understanding your costs.
While this is a hugely important step, and it’s surprising to see how many (failed) brands do not consider this early enough. Understanding your costs can lead to:
- More clarity on growth strategy
- An understanding of where you can improve margins
- An understanding of pricing strategy
- Transparency of your bill of materials
- More longevity and sustainability for your company
Costs can include obvious things like your bill of materials (the raw materials that go into the making of your product), your labor, workforce or employee costs, and your freight and packaging costs. However, there are some other (sometimes) more hidden items like:
- Minimum order quantity costs – you may have to buy more raw materials or order more than you initially planned for
- Duty Taxes – if you import or export goods you may need to consider, and pay for, taxes for goods entering or leaving the country
- Printing and labeling costs – an often overlooked aspect of product development is the costs associated with the packaging and labeling of your product. You might have the best product, but if it doesn’t look good and comply with regulations around packaging information, you’ll never be able to sell it
For many of these costs you may need to find a quality supplier and ask them to provide you with quotes and information on pricing.
Duty taxes and import/export fees
We encourage you to check out some online calculators like Duty Calculator to help you get an understanding of what to expect in terms of taxes and fees. Other government bodies in your local area also have great resources on their websites in order to help you make an informed decision.
Understanding these obvious and hidden costs is essential to checking your product viability.
Step 3. Test your pricing
Testing your pricing is an important part of this process. You may have done all of your numbers and worked on your processes, however unless you ask actual customers, you’re never going to know if you can sell your product.
We recommend, as always, to start with a comfortable, safe group to test your pricing strategy on first. Your friends and family are going to be your biggest champions, so ask them their thoughts on how much they would pay. This can be an easy entry into feedback and allow you to have some understanding of what other people may think.
Once you’ve asked your close group of friends, you can move onto more distant contacts and then into online forums or social media channels. The most important thing to remember is to get as much feedback as possible.
A software solution that helps track your project collaboration and feedback can be useful to make sense of the data and customer insights you gather at this stage.
One tip is to be vague on your product offering to begin with. When asking for pricing feedback, instead of showing your product straight away, try describing its features, purpose and use and ask for pricing feedback.
Once you have the initial ‘conceptual feedback’ you can then show your target market your actual product, sample or prototype and ask them again for their feedback.
Not only can this step help you understand if what you’re selling is what people are expecting, but it can also help you establish your messaging and sales tactics.
In order to grow with the market you’re in it’s important to continually collect and evaluate feedback. This can mean slightly updating pricing every now and then to suit current times and consumers demands.
Now as always, those aren’t the only things you can do to help price your product. However, if you complete those three steps, you’re going to have a good idea of:
- How much your product will cost
- What you should charge for it
- How much you can make
Understanding those three items can help further validate your product and give you the confidence to make decisions on your product or product range moving forward!
Product cost calculator
Download your free product cost calculator by submitting the form below. There is also a bonus product breakdown table included!