The Perfect Price Point — Is There Such A Thing?

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There are a number of factors that customers consider when deciding to purchase a product. In addition to your product’s features and benefits, the customer may consider factors such as your business’ reputation and whether you offer hassle-free returns or free shipping— if the item is being ordered online.

The price of your product is almost always a driver of purchasing behavior. Price your product too low and you may cut into your profit margins or send a message that your product’s quality is lacking. Price it too high, however, and you lose potential customers and purchases. That is why determining your product’s perfect price point is so critical.

5 Steps to Determine your Product’s Perfect Price Point

One of the starting points to determine your product’s price point is to conduct market research. Products are typically divided into three price points: high, medium and low.

The higher-end products have higher prices and appeal to consumers who are willing and able to spend more money, while lower-end products cost less but have a larger overall market. You should have a solid idea of where your product fits in the current market and which products represent its biggest competition.

After determining where your product fits in the market, you will have to determine the actual product cost. This includes not only the raw material for the product itself but the labor and other overhead costs, including handling and shipping fees.

Once you have determined your cost, you can determine what your wholesale and retail prices will be. Your wholesale price will be lower than your retail price, to provide a profit margin for retailers who sell your product.

When setting these prices, consider your profit margin, which is typically 30% or above. Retailers may want a profit margin of more than 50%, so keep the retail price in mind as you calculate it.

You may want to provide a “suggested retail price” to help ensure that retailers price your item competitively — though you cannot control the final price that retailers set.

Assuming that the suggested retail prices provide enough of a profit margin for retailers, it is likely that retailers will use that price going forward.

If you sell directly to consumers, you will also want to determine what your profit margin is for those sales. For more information about the factors to consider when pricing your product, check out the accompanying resource.

The Perfect Price Point — Is There Such A Thing? (Infographic)

About the Author!

Nicole Jonasson is the retail management consultant at Retailbound, a small, tight-knit Chicago-based team with years of expertise in the retail sector. We specialize in getting your company noticed in front of retail buyers but more importantly, we help you maintain a long-term relationship with them.

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