by Team AllYourVideogames | Feb 16, 2022 | News | 0
The task of price products or services is one of the biggest challenges for entrepreneurs, especially those who are starting a company. One mistake in pricing and the business can go into the red, even selling a lot.
It is very common, especially in online stores, to find the same product at different prices. And this happens because of pricing, as each store can use a different set of rules and variables when pricing.
To help you price your products and services and increase your profits, we have prepared a series of tips that will help you reach the ideal price range and we have also listed some guidelines on how to do the pricing.
But for these tips to be really useful, you first need to understand a very important concept when it comes to buying and selling products and services.
The difference between price and value when pricing
Many people attach the same meaning to price and value. But the truth is that they have different meanings in the world of negotiations.
Price is associated with money, that is, how much in reais (R$) a product or service is worth. Value, on the other hand, is linked to the benefits that a product or service generates for the consumer.
As an entrepreneur, you have the power to set the price of the products and services you will market. But only the consumer has the power to attribute the due value to these products and services, after all, he is the one who will benefit and therefore will understand the real value of the product or service.
Often two stores sell the same product, in the same region, but one stands out for selling this product in larger quantities, even with the price being higher. This is because the store with the most sales volume is likely to be able to show the customer that the product has a higher value. And the more value people can see in the product, the more likely they are to buy.
So here's the first tip: when pricing your products and services, you'll look at everything that involves their pricing (fixed costs, variable costs, and a profit margin). When presenting the product or service, you will look at everything that involves its value (benefits and what the audience is talking about).
Now that you know the difference between price and value, let's move on to more concrete tips and how to price products and services.
How to price services?
The service provision market is very large and varied, which generates great competition, even in smaller regions.
Knowing how to price the services provided can make a big difference when closing these services and increasing the profit of your business.
To price your services well, you need to keep the following in mind:
How much do I want to earn, net, per month?;
How many hours a day do I want to work?;
To provide my services, will I need to move or can I do it from my home or office, without moving?;
What are the fixed and variable costs that my service provision has?;
If during the provision of services it is necessary to buy some type of material for the execution, who will assume this cost? Me or the customer?
Having these answers, you can already have a base and start the process of pricing your services.
As an example, let's consider a residential electrician. This electrician wants to earn R$3.000 net per month, that is, he wants to have this amount as a profit from his business.
He wants to work 6 hours a day so he has time to spend with his family, keep up with what he does and rest, and he doesn't want to work on weekends.
As he will need to travel to the clients' homes to perform the service, he will have travel costs, which are variable. So he estimates that during the month these travel costs will be R$1.500.
In addition to this travel cost, he has other costs such as maintenance of tools and taxes, which is around R$1.000.
If during the service he needs some material, the cost is borne by the customer, so it doesn't enter the account.
The time has come to price the service, in which case the pricing will be done by the hour of work.
We know that the total costs are R$ 2.500, that is, he needs to earn at least that amount every month to keep the business running without making a profit. But he wants a profit of R$3.000 a month. So let's add the costs to the profit he wants, which makes a total of $5.500.
The electrician only wants to work from Monday to Friday, for 6 hours a day, which is about 120 hours a month, more or less.
To close the account, and find out how much he has to charge per hour worked, just divide the R$5.500 (costs + profit) by 120 (hours worked per month). This gives an hourly price of around R$45,83.
It seems complicated to price services, but it is not, and that is where the second tip comes in: have as much information as possible about the costs of your service, how much profit you want to make and how many hours a day you want to work. So you can perform the calculation more assertively and reach the desired profit.
How to price products?
There are several ways to price products but here we want to give you the simplest way, so that you can make a profit on your sales without having to spend many hours doing the math.
Efficient product pricing depends on the consistency of the information you have about the costs that will influence your final price, that is, the price at which it will be sold.
Before you start pricing your products, have the following information at hand:
How much does each unit of the product cost?
What are the fixed and variable costs that I have to put this product on sale?
How much profit do I want to make from selling this product?
With this information it is already possible to price the products, and as an example we will use a toy store.
The toy store bought a box of 100 puzzles and paid R$100 for these 1.000 units, the equivalent of R$10 per puzzle.
To sell these puzzles, the store has expenses with rent, meter, water, electricity and other smaller expenses that per month are around R$2.500.
The toy store wants to make a profit from the sale of these puzzles in the amount of R$1.000.
Now that we have all the necessary information, it's time to price.
Just add the price of the puzzles, the expenses (fixed and variable) and the desired profit, which gives a total of R$4.500 and divide by the number of puzzles that the store bought, which was 100.
With these numbers we arrived at the price of R$45 per puzzle.
See how easy it is to price products? But there is an important detail that you should pay attention to, and that's where the third tip comes in: if you work with a variety of products and not just one product, instead of defining costs and profit margins through a fixed price, as we did in the example, work with percentages, so you will maintain your profit margin at the desired level, spread fixed and variable costs across all products and have more competitive prices.
Summary on how to price products and services
For efficient pricing of products and services, rely on the following set of information:
To price services, take into account:
- Profit margin;
- Hours you want to work per day;
- Fixed and variable costs.
To price products, take into account:
- Profit margin;
- Product acquisition price;
- Fixed and variable costs
With this information in hand, the challenge of pricing your product or service becomes an easier task and you can make better profits by doing the right math.
And to close, stay with the fourth tip: when pricing your company's products and services, research your competition and your audience. The competition will give you a parameter on the average market prices and your audience will give you an insight into how much you are willing to invest in products and services.
That way, you adjust your profit margin and your sales process to achieve the desired results and keep growing.
