Questions to ask when pricing your product

It is important to understand what effect the price that you choose for your product will have on your business finances. The impact of the price that you set will determine whether or not your business operates financially strong or suffers from a low cash flow. It is important to understand that setting the right price the first time a product is launched is crucial. If you have to reset the price on your product you will most likely lose sales because of it. In addition, it is important to understand that pricing to low can be a serious problem as well. While you don't want a high price to drive your customers to your competition you also want your customers to perceive your product as having value which can be deflated by a low price. Because of the huge impact of pricing there are many different questions you should ask before settling on a final price. Here are some questions to ask when pricing your product-

- How much does it cost to make the product? The first step in determining the right price for your product is to consider what it costs to make it. The most basic definition of pricing means that you will need to price your product so that it covers all of the costs and provides you with profit. Keep in mind that you will need to take into account both the fixed and variable costs that are involved in making the product. While the fixed costs can be easily determined it can be more difficult to factor in variable costs. However, when you determine the costs of making the product it makes the pricing of the product much easier.
- What is the demand like for the product? The next step in finding the right price for your product is to determine what the demand is. The overall demand for your product will play a big part in what price you ultimately settle on. If your product is "hot" right now it will allow you to price it differently then if you are selling a basic necessity. It is important to understand that there will be many different factors will affect the demand of your product. These can include: your customers wants and needs, their income, what the competition is offering, and even the current market conditions.
- What is the product lifecycle? You should also take into account the lifecycle of the product that you are pricing. Every product will have its own lifecycle. If you are pricing something that is considered a classic or something that can be used long term it will be priced much differently then a short term, trend item. You must be able to realistically determine what the lifecycle of your product is in order to find the right price for it.
- What is the industry standard for the product? Just like anything else that has to do with your business you will need to take into account what your competition is offering your target market. There will be an industry standard for your product no matter how unique or special it is. You will need to be able to determine what that is and then price your product accordingly. It is crucial to understand that your customers will know what that price is. Today's tech savvy customers will be able to literally check prices from just about everywhere so the pricing of your product will need to be in line with the industry standard if your product is going to be considered by your target market.