Pricing: 5 questions to avoid making mistakes when setting a price

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Pricing is a process that requires study and dedication. When done incorrectly, it can directly affect the profits and health of your business. Pricing depends on three factors: your costs, your audience, and your competitors.

To help you correctly price your products or services, we have put together five essential questions to help you define these three factors and avoid making mistakes when setting your price. Check it out!

5 questions to avoid pricing mistakes
1. What are the costs and expenses involved in your product or service?
Every sale involves costs and expenses. Costs are the investments required for a product or service to exist and be offered to potential customers. Raw materials, labor and maintenance are some of the costs involved.

In addition, there are expenses, which are indirect but necessary costs for marketing, such as marketing and sales expenses, and expenses to keep the company running, such as accounting, rent, water and electricity. When setting prices, both costs and expenses must be taken into account.

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2. Is your strategy margin or turnover?
There are two main strategies for setting the taiwan phone number lead price of a product or service : margin and turnover. Margin is the difference between the cost of the product and the selling price. If you buy a product for R$50.00 and sell it for R$100, your margin is 50%.

Many companies are able to obtain a very high margin on the sale of their products, even if they are sold infrequently. This is the case for jewelry stores, car dealerships, educational institutions and designer brands.

Others, on the other hand, make money through sales frequency or product turnover. In other words, their margins are tighter and they make little money on each product individually, but since they sell very frequently, they make money overall. Supermarkets and wholesale stores are examples of companies that have a product turnover strategy.

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3. How much are your competitors charging?
Before pricing your company, it is essential to know how your competitors are setting prices for their products or services . They have products, services, target audiences and other characteristics similar to your company and can shed light on the path forward.

Understand which are the most expensive and cheapest options available on the market, what they offer that sets them apart, whether they often go on sale, how much of a discount they offer, and whether prices vary seasonally. With this information, you will have a good basis for deciding your prices.

4. What is your audience’s perception of value in relation to your product or service?
The public's perception of value is how much the consumer thinks your product is worth and how much they are willing to pay. If your price is not within the potential customer's perception of value, it will hardly be sold.

Let's take an example: there are headphones of all different prices. You can charge R$1,000.00 for yours, but if your customers think it's not worth it, that they would pay R$50.00 at most, they won't sell it. This perception of value encompasses all aspects of the product, such as packaging, personalized service, brand, among others.

To assess this perception, you can ask your customers or check how price changes increase or decrease customer demand for the product or service.

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5. How sensitive is your audience to prices?
Another factor that directly influences pricing is customer sensitivity to price. Some audiences are more price sensitive than others and this must be taken into account when pricing.

Medicines, for example, tend to be less sensitive. Even if they increase in price, demand will remain the same, as customers need the medicine to recover. Food products, on the other hand, are more elastic. When prices increase, it is common for some consumers to switch to more economical options.

When pricing your products or services, consider costs and expenses, profit strategy, competitors, perceived value, and price sensitivity.