One of the most important steps in launching a business is figuring how much to charge for great ROI. Find out here how to calculate product cost.
Launching a new product can be one of the most exciting things you can do. There’s nothing more rewarding than seeing your months of research, planning, and dedication pay off.
Now that you have a product that’s ready to hit the market, you need to handle one of the most important parts of the product creation process: pricing.
Knowing how to calculate product cost can ensure that you’re making enough to cover production costs and can make your product profitable. Improper pricing could lead to low consumer interest and could possibly make a great product into one people don’t want.
Pricing products requires looking at things from multiple perspectives, and we’re going to help you figure out a pricing structure that works for your latest product. If you’re ready to learn how to price products, make sure you follow these essential tips.
1. Think About the True Cost of Your Product
If you only think about material costs when you price your product, you’re missing out on learning its true cost.
A lot of things need to come together to make a great product. You need to take all of them into account when you’re working on your pricing structure. If you fail to do so, you could risk setting your price far too low.
When you’re thinking about the true cost of the product, think about all of the materials you need to create it, including any equipment and machinery. Factor in the labor needed to make each product and how much it takes to hire people to make your products.
Overhead is a huge part of pricing products too. Think about how much you pay in business taxes, insurance, rent, transportation, and marketing. If you’ve taken out any loans to finance your product factor that into the cost, as well as your own salary.
After you’ve handled all of this a “cheap” product suddenly becomes a lot more expensive.
2. Study the Competition
If you want to get a feel for how the current market views your product, look at your competitors. The price of their product or service can give you a lot of information on how you should price yours.
Don’t just look at one competitor, do some research on several competitors that sell products that are very similar to yours. After you’ve done that, you can dig a little deeper to get some insight into why they price the way that they do.
See how your competitors source materials for their products. Some of their prices may be lower or higher depending on their supplies. Also, take the region where they sell and produce their products into account. Some areas of the country may be more expensive to do business in than others.
3. Get Customer Feedback
Whether you’re releasing a product that would be perfect for wholesale or have something in mind that would only appeal to a small number of people, do a little customer research on your own.
Luckily, you don’t have to spend a lot of money to get valuable feedback fro your customers. E-mail surveys are a fast and easy way to get feedback from people, and they’re very inexpensive to do. You could also make this even simpler and just ask your customers in person.
One important thing to keep in mind during this process is to not ask vague or open-ended questions. Instead of asking someone how much they would pay for your product, ask them if they would pay $20, $30, or $50. Giving them a set amount gives you better data.
4. Don’t Try to Compete with Big Retailers
As much as we would all like to make as much money as Walmart or CVS, trying to emulate their prices will drive you out of business fast.
Big box stores and national retailers have access to resources that small product makers won’t have. They can buy materials in bulk and have a lot more capital to work with than you do.
Don’t worry, even if you can’t compete with big-box retailers you can still find a dedicated audience for your product. If you emphasize benefits your product has that goes beyond the price you can find the right buyers.
5. Consider the Future
It’s rare for the prices of certain products to stay the same year after year. Material costs will change, the economy can fluctuate, and you may have to adjust your prices to ensure that you can still make money.
Don’t make your price structure so rigid that you won’t be able to adjust it when the time comes. When you plan for things now, think about how you could gradually increase prices over the next 3-5 years.
You don’t have to plan for a huge increase, but figuring out how you can afford to charge 5%-10% more now can save you time in the future.
Know More Than How to Calculate Product Cost
Now that you know how to calculate product cost, you’re ready to move to the next phase of your product launch. If you do your research, plan for the future, and carefully calculate your costs, you’ll be well on your way to having a perfectly priced product in no time.
Pricing your product is only one thing you have to do to get ready to successfully launch. Have you given thought to your marketing strategy yet? Do you know how to get your product to retailers?
We have a lot of helpful business content on our website. Take some time to browse our posts around business and finance so you can find the answers you need to succeed.