One of the hardest challenges that businesses face is determining the right price for a product or service. It is not as simple as determining your costs and adding a percentage markup. Actually in total, there are at least five other factors than costs that affect price, and all of them are important to consider when determining your price.
First of course, you do need to cover your costs. This means that you need to be able to pay for the materials, labor, and overhead that go into your product or service. The problem is that overhead is a grey area. Many factors of pricing affect this dramatically.
One of these is your overall organizational and marketing objectives. The overarching goals of your organization can end up having a great effect on your costs. The more you want to do, the more your overhead will grow. Before determining price, thinking about where you are and where you are going. A major challenge of pricing you want to consider is that once you set a price it is often hard to change it, especially to raise it.
Plus, you need to think about how much you plan to spend on marketing and advertising. Advertising is an important tool that can bring in new customers and bring back existing customers. It is crucial to any business, but it also has a cost that should be put into the price. If you plan ahead and set a budget that is included in your price, spending on advertising will not be something that you feel like you are spending your profits on. Instead, it will be planned and accounted for in your price.
Next, there are legal and regulatory issues to consider depending on your product or service. These must also be included in the price. While this does not affect everything, it has a big effect on those it does reach.
After looking internally though, it is time to look externally to set the price. What is the competition priced at? Are you going to enter the market as a high, medium, or low priced competitor? In addition to this, ask yourself, what value do you provide to your customer in that price and how will you customer respond to your product and service? All of these external factors can influence price.
Finally, the last factor to consider is your personal pricing objectives. This is wear markup and profit comes into price. This is when you get to determine what additional profit you want to make after considering all the other facts. Be warned though, the markup must match the external factors previously mentioned. If the product is highly priced, but has no value to consumers, no one will buy it.
For better help understanding how to plan for advertising and marketing expenditures, Adventure Ad Agency is here to help. Please email us or give us a call anytime!