By Anica Oaks

Correctly pricing a product is more complicated than most people realize, and having the right pricing is going to make or break your company. If you have a new product that is ready to hit the market, or you own a shop and are looking to price your new merchandise, then you will need to take quite a few variables into consideration to find the perfect price point. Here are a few tips to get you started.

Market research

Conducting market research is going to be the most important step in this process, and you should begin that research in the initial stages of product development. There are many different ways to collect data, including focus groups, surveys, phone interviews, and questionnaires. You will also need to research your competitors’ products to get a better idea of their various price points. Starting with market research will at least give you a ball park range for your new product’s price at launch.

Establish the product’s true cost

Establishing the true cost of a product shouldn’t be too difficult as long as you keep good records. In addition to the production and packaging materials and labor, you must also think about overhead expenses. Even if the product is relatively cheap to build, your company might end up spending huge sums of money on insurance, taxes, transportation, and storage. Those indirect expenses could end up being just as costly as the initial materials and labor cost.

Price slightly higher than you think you should

One of the reasons why a larger corporation can keep their costs so low is because they optimize almost every facet of their business. For smaller businesses, expenses are much more volatile, and that is why you should price slightly higher than you normally would for the initial release of a product. With a higher price, you will be able to cover hidden expenses like hiccups in your supply chain.

Track your sales

Even if you spent quite a bit of time researching dozens of variables, you might still need to change the price in the future. Altering the price of your products by just a few cents could have a huge impact on your sales, particularly if you are selling significantly more than you anticipated you would. Any price changes need to be carefully monitored so that you are still able to keep up with your direct competitors. The easiest way to alter the price of a new item is to invest in a digital price tag that can be changed with nothing more than a phone app or company computer.

While it might be tempting to drop the price of a product as soon as the sales stagnate, that isn’t always a good idea. Dropping your price too low could change a customer’s perceived value of the item, and that might end up hurting your company in the long run. Regardless of what strategy you use to price your products, make sure you do your research and take a smart approach. With some level of flexibility you will be able to find the sweet spot for your products that match supply and demand and still put a good profit in your pockets.

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Anica Oaks is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. You can connect with Anica on Twitter @AnicaOaks.