Setting prices for your goods or services is not solely an art or a science; it’s a combination of both. When setting prices, several factors need to be considered and considered well. Here are just some of them.

  • Your position in the market
  • The quality of your product (whether goods or services)
  • Your competition
  • Your Unique Selling Proposition (USP)
  • Value perception
  • Desired margin
  • What The Market Will Pay (WTMWP)

Notwithstanding the points above, your selling price will generally be based on cost or value.

Using a cost-based price structure is deciding on a gross profit margin that you want to achieve on the amount the product costs you. The main benefit of this method is that it is easy to keep on top of your gross profit margin (which is essential for succeeding in business). The main shortfall of this pricing method is that the customer doesn’t feature in the price calculation.

Using a value-based price structure means you set your prices at an amount you believe the customer will pay based on the product’s value. Naturally, this means some products may return a higher margin than others because the customer’s ‘value perception’ differs across different products. The critical point is not what you think the product is worth; it’s what the customer thinks it is worth. That’s because the customer decides to purchase (or not purchase) based on the value they will receive. If they don’t believe they will receive the value, they won’t purchase, period. It is up to you to Communicate The Value. You can charge a higher price if you can communicate a higher value. However, if you want repeat business, you’ll need to deliver the value.