Ask @RetailPhil: 5 Things to Watch Out for if You Want to Set The Perfect Price
While it seems straightforward, there is an art and a science to getting to the right price point.
Sure, you’ve done tons of research and may have a pretty good idea of how much people would pay for your product but this is a case where the old adage, “measure twice, cut once” really rings true. Take some (more) time and consider these points before you set your price in stone. This may save you aggravation – and money – in the long run.
Don’t think of cost as an ingredients list; cost is more than just the sum of parts and labor. If you’re able to, build a bit more into the cost to allow for inflation, increase in labor or ingredient cost. Think of it as, “rainy day funds.”
Do you plan to put the item on sale? Are you in a field where price promotion is very heavy? Do you have high seasonal sales for Christmas or Halloween or Back-to-School? These are all things you need to take into account when thinking about the monies you need to spend to work with retailers on cost. If you intend to sell for a stable, everyday low price (EDLP) than your priorities will be different than if you have a product that will have a high regular retail price before going on sale for a much lower price point.
Retailers have established margins that they look for. The margin is the difference in the price that retailers will sell your product for versus the cost for which they purchase it. Typically, your industry will have a set average so you’ll want to make sure you’re within range of that or it will hamper your ability to gain entry to a retailer.
You should always start with the lowest possible price that you can accept for your product. If your customer list includes Walmart, they will want the lowest price in the market. If you have Amazon as part of your customer list, you will need to consider third-party sellers and the possibility of being undersold. Know what your lowest retail price should look like and be prepared to defend it.
It seems odd that the consumer is last here, but it’s the final check on your pricing checklist. If after all your considerations, you have a price point that you know consumers will still accept (or really love) then you have the right price point!
Taking the time to set your pricing right is critical to making the road to success smoother. The last thing you want is to be working on something that isn’t returning the right amount of profit. Consider pricing as a foundational element; it ensures you have strong and healthy profits to grow your small business into a strong and healthy enterprise.
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