Many business owners have struggled to decide how to price their products. Not just for new business owners.

They are too expensive and nobody will buy them. You won’t make enough money if you price them too low. They should be priced just like any other product. You need to think of ways to distinguish yourself.

This article will discuss pricing products from two different perspectives. We’ll first cover basic pricing tips to ensure everyone is on the same page. We’ll then go deeper to answer some big questions.

Note: This article is written specifically for retailers, so strategies might differ for companies that sell B2B, wholesale subscriptions, bookings, or other types.

Pricing basics – Base considerations

You must first do the math when deciding how to price a product. There are also costs associated with marketing and development. You must also make enough profit on each sale to make a profit.

These costs may vary depending on the product.

• Production
• Marketing
• Labor
• Taxes
• Shipping, if not charged separately
• Other business expenses like permits, licenses, and warehouse fees

You win if you can reduce any of these costs while maintaining quality and service. This means that you can maintain the same prices, but make more.

The reverse is also true. If costs go up, you lose profit.

Marketing is all about finding the right strategies to maximize your return on investment. Then, increase your marketing use of these channels and methods. This is not an easy task. This is why it is better to use marketing that generates trackable data than spray-and-pray marketing that doesn’t provide a reliable way of determining its effectiveness.

Add all of these costs together and then compare them per product or per item. What is the average cost per widget that you sell? Once you have this information, decide on a higher price. The difference is your profit.

These are the fundamentals of pricing. You may also see some challenges.

Pricing questions – What factors influence how products are priced?

You’re not limited to the basics of pricing products. There is a lot more to it.

It is important to make money. You must make money.

That’s at least the accepted wisdom. We’ll get back to that in a second.

Pricing can become quite complicated when you consider these and other difficult questions.

What is the purpose of this product, for example?

Perhaps you are selling what is known as a “loss leader”. You sell one product but lose money on it. You do this to win customers over and sell other products later. This pricing strategy was perfected by infomercials in their golden age in the 1980s and 90s.

You should price an item differently if you want it to be your moneymaker and support the loss leader.

It’s possible to increase your revenue by just changing the price of a staple product, such as a truckload.

You might also want to ask yourself why people would buy your product.

You probably already know the answer. It’s the reason you created the product. This is an important question because it will impact how much you charge for your products.

You don’t want to be caught in a race for the bottom. There is only one Walmart and that’s for a good reason. You will always find someone willing to pay less than you. It is not a good idea to try to compete with others by offering lower prices.

It turns out, however, that consumers do not use price to decide which products they want to purchase.

People buy products for reasons other than price

There are many other reasons people buy, besides the price. These are:

• Social status – This is what I want because it will influence how others view me

• Fear of missing out – I want it because everyone else has it, or is talking about it

• Values – This product speaks volumes about my beliefs, values, and passions

• Identity – This product reflects something about me – my cultural, religious, and business identities, as well as my gender identity.

• Desire – It’s what I want because it’s all I want

• It meets a need – This product must be available to me to fulfill a life-long need

• Privacy and security – This product are important to me because it protects my family and my possessions.

This is a detailed look at these reasons and many more reasons why people purchase products.

People will pay more for products that resonate with these motivations. These are more important than the lowest price.

The key to optimal pricing is knowing your audience.

What is your audience’s reason for wanting your product? What is it that your audience wants? How much does that amount to them?

Prices are a little higher than you think

After you have settled on the price you believe is the best for a product’s purchase, you can go a little higher. This will increase your profit margins and protect you from inflation and unexpected expenses. It will also make your business more profitable over the long term.

This allows you to offer discounts and specials occasionally without affecting your profits.

Let’s say you want to sell a product at $50 and it costs $30 to make and market. Sixty-six percent of each sale is a profit. However, if production costs suddenly increase to $35 for reasons beyond your control, your profits will plummet to 43%. 

If you take out $55, the initial cost, 83% is now and 57% after increasing the cost.

Pricing and commoditization

When a product becomes too expensive, it is called the race to the bottom. People will choose products with lower prices, whether they’re toothpaste, toilet paper, or tamales. Right?

But not so quickly…

Do not base your pricing on what the competition is charging or what you believe customers will pay. You can charge more if you know why your customers want your product.

This article is about luxury toothpaste and other oral care products. One brand of toothpaste sells for $55 per tube. It contains ‘botanicals’, whitening technology, and other wonders. This toothpaste is not sold at Walmart.

This is a little extreme, but it’s true. As if the toilet were made out of gold. Here’s a Bloomberg article about a 2-pack of toothpaste selling for $17 This is $8.50 per tube. Lenny Kravitz is even pitching it.

Another toothpaste is mentioned in the same article, which costs $100. Yes, toothpaste costs $100! Why? This is for people who are concerned about fluoride but don’t want it to affect the health of their teeth.

Specialized products are designed to meet specific needs. These features are valued by a sophisticated audience who will happily pay for them. Note also the power and influence of celebrity: People will pay more for products that are endorsed by someone they trust.

What about toilet paper?

This investigation looks at the luxury toilet paper market with prices up to $3 per roll.

Why? Many high-end brands are committed to the environment by not using plastic wrap, bamboo, or other traditional tree materials. Some offer superior textures. Others sell toilet paper with beautiful designs.

Are you able to see how these companies cater to certain values, beliefs, and status symbols?

Tamales are indeed available. This story is about luxury tamales. Six dozen are available for $92, with $18 shipping. This is $110 for 72 tamales.

You can reimagine any product and sell it at a higher price if you make it available to a specific audience.

Here are four tips for pricing products

This information is important to keep in mind when pricing your products.

1. Smartly use ‘free’

Neiman Marcus could sell the $110 tamales for $99 plus shipping. Although they would make less per sale, they might be able to sell more. Because it uses the power nine, it would be a worthwhile test.

Free shipping can be a smart use of your free time, but it could also come at a cost if you misuse it.

Another smart strategy is to offer a complimentary gift with every purchase. You are not giving away anything, but the customer will still be motivated to buy.

2. Use the Buy Now, Pay Later (BNPL).

This is where the idea of spreading out payments makes costs easier for customers. A similar concept is buying in installments. 

This is the innovative part of modern ‘buy-now, pay later’. Technology has made it super easy and secure to offer lower-priced products, even those that are less than $100. Learn five benefits of using BNPL and technology that works with WooCommerce to make it simple.

3. Do not reduce prices when times are difficult

There is no evidence to support the claim that cutting prices in difficult times will help you maintain your profit levels or your ability to pay your employees.

Customers will expect discounts if you offer them all the time. This is a trap that you don’t want to fall for.

4. Smartly use coupons

It’s not a sale if it’s always in stock. Customers know this. Use coupons wisely if you do decide to use them. These are just a few of the many benefits of using coupons:

• Attracting new customers

• Reduce inventory for a particular item

• Giving back to the community

• Celebrate a holiday

• Increase your average order size by taking advantage of offers such as saving 20% for orders above $100′

WooCommerce offers many coupon extensions to suit different situations. You can become a pro at couponing. Learn how to use coupons on WooCommerce.

Don’t try to sell your products or yourself short

Pricing shouldn’t stress you. Don’t compete with others. Calculate your costs, and then set a sustainable margin. Next, highlight the benefits and how your products will benefit your customers. It is the best way for you to get higher prices and increase your profits.

When it comes down to it, product prices will be unique to your company and your audience. It might take some time to find the right number. It may take some time to find the perfect number. Keep in touch with customers and monitor analytics to see what is working well and what might need to be changed.