How to price products for your small business?

Posted on 25 Mar 2022 11:00 in Small Business Hacks
by Zainab Sohangpurwala

Pricing is the key to sustaining your small business. Over pricing and under pricing has a lot of impacts on your sales in the long run. Read along to know how to perfectly price your products.

Pricing plays a crucial role in sustaining a small business. It affects the customer's decision of purchase, rate of return orders, customer satisfaction, and affects your sales, and profits. If your pricing is done properly your customers will purchase your product without thinking twice.

Improper pricing works two ways – either you price your product too high or too low. If it is very expensive people will be reluctant in buying it and if it is too low then a lot of people might buy it and think it's a steal deal and you will suffer losses in the long run or people might think it is of low quality and might not buy it.

People associate quality with pricing in today's world. If it is expensive, it is a premium product made of the finest materials and if it is cheap that means it is of low quality.

That is why your pricing impacts a lot of things!

What are the things you should consider before pricing your products?

There are a lot of costs to consider before pricing a product. They are as follows-

Raw materials – the price of the raw materials is a major cost to consider before pricing. Calculate the price of the raw material used in one product.

For example, your business deals in handmade candles. Find out the price of the raw materials used in making one candle. A lot of people make a mistake and consider the price of the investment done in the raw materials. You don't have to recover the price of all the raw materials by selling one candle as they are used to make 100's of them.

Packaging – calculate the price of packing your goods. Nowadays small businesses like to provide fancy packaging to increase customer satisfaction and give a premium finish to their products.

Shipment – delivering products to the customer's doorstep is the reason why people shop online from small businesses. In this digital era, it is a need to have delivery services.

Many businesses tie-up with local shipping companies so that they get cheaper rates, faster delivery, and ease of tracking. You have to consider the cost of shipment too.

Many businesses provide free delivery at a particular order rate. For example, free delivery above the purchase of 1200/- rupees.

Other include shipping charges for all the products. So, if the products cost 600/- rupees they quote 650 to the client and say that the delivery is free.

Some have a standard rate. That means whatever the order value might be an additional fixed amount will be added for delivery.

Maintenance – whenever you make any product things like electricity, water, gas, and other equipment are used. A certain percentage of the pricing should be kept for covering these charges.

If you have your workshop then you have to pay various bills such as the rent, electricity, maintenance charges, etc. you have to ensure that you recover that amount from your sales.

Labor – if you have employed people then you have to pay them salaries too. You cannot recover their salaries by selling one product. But throughout the month if you keep a certain percentage of your product pricing for your workers then you will be able to do that.

If you work alone then should you consider that price?

OF COURSE! Your time is not for free. If you would've employed people, you would've paid them salaries.

Labor doesn't include only the salaries of your staff it includes

Labor for procurement of materials

Labor for working

Labor for cleaning and maintenance

Labor for packaging and dispatching final product.

You should consider a price for your labor and effort as well.

Isn't labor and profit the same?

A lot of businesses make this mistake of equating labor charges and profit as the same. It is not the same. You should add your labor charges separately in the cost price and add your profit to that.

The money that you earn as a profit can be used in other things such as marketing and advertising.

Your labor is your salary for your hard work.

Money for marketing?

Advertising is the key to communicating with the audience and turning them into customers. Small businesses should keep a budget for marketing.

That cost cannot be added during the pricing of each product. Hence a lot of companies and businesses run their marketing campaigns from their profits or investments.

Formula for pricing

After calculating the costs for all the above heads add them up. This is the cost price of your product. Depending upon your business type and market segment you can decide upon your profit percentage.

If you want 40% profit on each product calculate 40% of your cost price and add it.

This is your selling price!

You can devise your system for pricing. A common way of doing this is adding ¼ of your cost price as your labor charge, ¼ as your maintenance and functioning, and ½ as your profit. This means double your cost price as your selling price.

But this method might not work in all business types. You have to study your market, your competitors, and their pricing and then decide your own.

Once you have decided your pricing you need a platform for selling your products. Still, selling via social media platforms such as Instagram and Facebook?

It is high time you make a website or an online store for yourself!

Do not know how to go about that. Don't worry Shimbi Labs BUDO and NINJIN are here to solve all your problems.

BUDO- helps you create a website in minutes. It is efficient, user-friendly and economical.

NINJIN- helps you create an online store. It has various tools to create a unique and attractive website store.

        



About the author

Zainab Sohangpurwala     
Passionate about helping companies grow their business via content marketing.


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