It requires a lot of know-how to correctly calculate product prices without experience. The price gives the customer a lot of information. It also depends on who the product is aimed at. It makes a big difference whether you sell to corporate clients or end users, to a brick-and-mortar retail outlet or to an online store. In this article, I discuss the main features of the calculation. My knowledge does not come from the textbook, but from practice. In this blog article, you will get practical information on the topic “What is Product Pricing and how to calculate product prices“.
In theory, you may think of the following: You add up all the costs incurred and strike the sum of the desired profit. Unfortunately, it’s not that easy. If you calculate the wrong prices, you can escape a lot of money. In the worst case, when calculating product prices, you even make a loss with every product you sell. That happened to us too. We initially understated the cost of the cereal we produce and paid it every month. Since we sold the product exclusively online at this time, we were able to adjust prices quickly and easily.
Requirements for the price calculation
We live in an affluent society. Every day we receive countless newsletters, online advertisements, advertising banners, flyers, and brochures. This makes it increasingly difficult to be actively perceived by customers. Most of the articles that deal with price calculation assume that you get your products or services actually placed on the market. But it has to come first. I know many founders who did not succeed and who had to give up their business. It’s a big challenge to get some reach and reach potential customers. That’s why digital and marketing know-how are essential in addition to a great product that adds real value.
Product Pricing: How should you proceed?
From our point of view, it has proven useful to first contact the target group on a small scale and to start a proof of concept before you start production. The first law that you should follow applies to price as well: Know your customer. First, it’s important for marketing that you know where your customer is. Is he online or more likely to be at events? How much does he earn and what is important to him?
The second important point for the calculation is the shipping. Several studies have shown that customers do not want to pay shipping costs. That’s why it makes sense to include the shipping costs in the price. We at Amazon Prime have seen how successful a model can be without shipping costs. People have gotten used to it. Jeff Bezos, the founder of Amazon, has a clear goal:
“If you act competitively, you have to wait for a competitor to do something. If you are customer-oriented instead, you can do pioneering work. “
Do not orient yourself to the prices of the competition when pricing, but put the customer in the center and give him exactly what he wants. That’s why Amazon is working hard to make delivery, return and ordering as easy as possible.
3 important points for the product pricing calculation
- Marketing and digital skills are extremely important today to reach the target audience
- Make a proof of concept before you go online with the product
- Do not focus on the competition, but always on your customers
As you can see, the topic of pricing is very extensive and you have to acquire know-how in this regard as a founder. It is important to start small, to test online the calculated prices, to get to know your target group better, to make the proof of concept and then to scale it. I wish you much success.