Things to Consider When Pricing a Product

Many factors can make your products either a success or a failure once it hits the market. One vital variable to take into consideration is the price. Pricing a product is never a straightforward task as you need to consider both internal and external factors. Here are five things that you, as a business owner, need to think about before pricing a product.

How Much Does it Cost to Produce

Every product on the market costs money to produce. Therefore, you have to price your product to cover your costs and yield a decent markup. The tricky question is: do you know what it costs to produce one unit of your products? You will need to consider fixed and variable, direct and indirect costs, and reasonably allocate expenses across your business.

A few production costs that you should take into consideration include:

  • Allocated payroll;
  • Rent, utilities, and other building costs;
  • The cost of any machines used to create your product;
  • The cost of materials;
  • Allocated insurance costs, and;
  • Advertising and marketing costs.

Demand For Your Product

You might have heard of the demand and supply curve. If not, the short version is that a product that is in high demand will command a higher price. As demand falls, the price of a product should also decline.


It is essential to understand how fierce the competition is and how your competitors price their products. If your competitor charges $50 for a product similar to the one you are making, it is not a good idea to charge $75 unless you have something unique to offer.

Suppose you are sure that your product is of higher quality. In that case, you can differentiate your position and target consumers willing to spend something extra to buy better quality products.

Is This a New or a Mature Product?

As a product matures, the costs will go down. Business and Product cycles share the same curve. In the beginning, you will introduce a product, and the demand will grow. After a point, the demand growth will reduce until saturation comes. Finally, the demand for a product will start declining as new products enter the market.

Using Price as a Marketing Tool

And the last area we wanted to consider for product pricing is how price can be a valuable weapon in your marketing strategy. Although every company would prefer to profit, pricing your goods at a loss may be an excellent long-term strategy. There is no doubt that you can benefit from selling a product at a loss in more than one way. First of all, you penetrate a market, grabbing market share, something that will ensure that there always be loyal customers to buy your goods even when you decide to increase your price.

Selling at a loss can also force other competitors out of the market or create a barrier for potential competitors to enter the market. Finally, if you are selling more than one product, selling product A at a loss might increase the sales of Product B and the profits that it yields.

Pricing your products or services might not be an easy task, but it can help your business grow. Study the competition, understand what consumers are willing to pay, and take a step back to see your business as a whole instead of looking at each product separately!

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