Business Pricing & Profits: Questions & Answers

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Business pricing is always a tricky area to contemplate. If you set your prices too low, then you will find yourself struggling to generate a profit. Set your prices too high, and you’re not going to be able to find enough clients to sustain your business. You have to be a real-life Goldilocks, devising a pricing strategy that is just right.

Sadly, this can be an incredibly confusing task, which often generates more questions than answers. Below are some of the most common questions new business owners find themselves asking when they consider their pricing, so browse through and find the answers you need to ensure your future business success.

Products

How do I decide a price for a product I am selling myself?

Products that you sell yourself — for example, through an online store or at a market — should be priced at your retail value. This price takes into account:

  • Your costs for producing the product,

Plus…

  • The cost of selling the product (such as online selling fees),

Plus…

  • The profit margin you expect.

How do I decide the price for a product I am selling for others to sell on (distributors, stores, etc.)?

In this case, you will be selling for a wholesale price. This will usually be less than your retail price, as you do not have to factor in the costs of marketing, selling fees, and other costs of selling directly to customers. So you will set a price based on:

  • The cost to you of producing the product,

Plus…

  • The profit margin you expect.

What should my profit margin be?

It depends; the average profit margin fluctuates hugely between industries. If you’re not sure what your profit margin should be, then run a search for the average margin in your industry and use that number as a baseline.

How do I know how to price products to meet my needs and keep the business running?

This is a very complicated question, and sadly, it depends on too many variable factors (such as the profit you want to generate and your own expectations for a wage) to determine. However, there is a basic calculation that should give you a starting point for how much you need to earn:

  • Your expenses (your rent/mortgage, utilities, broadband, insurance payments, groceries) + costs of running the business + the national minimum wage.

This calculation should give you a figure you need to earn on a monthly basis for the business to stay afloat and keep your life running smoothly. You won’t be making a fortune, but it’s a good starting point to base startup calculations on.

Can I control what stores/distributors charge for my product when they have bought it from me?

Yes, this is your minimum advertised price (MAP), and you can set this at a price point you feel reflects your product. It is essential that you always set the exact same MAP for every store or distributor you sell to. This protects your business relationships, establishes fairness, and makes it clear you are a reputable business owner. If you sell to multiple sources, the likes of Trade Vitality can help you ensure MAP compliance, so you can protect the reputation of your company.

How do I know what customers will pay when setting my retail price?

To an extent, you won’t know until you try! Take your lead from competing products and businesses, or conduct market research to help ascertain what potential customers think of your pricing strategy.

In conclusion

Hopefully, you found the above answers helpful, and can now go forth and set the right prices to ensure a bright future for your business.

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