One of the most common questions among entrepreneurs is: how to calculate the price of a product? It is a difficult question, since there is no single way to get the price of a product, but it implies different factors that you must take, such as production costs, transportation, salaries, advertising, etc.
One of the most complex moments for every entrepreneur is learning how to calculate the cost of a product and how to calculate the price of a product. Add to that that there is no single form for the !
Therefore, below we are going to present the range of possibilities that must be taken into account when calculating the sale prices of a product in your online store.
Even in this article, you will be able to download your own template for free to know . Shall we start?
Considerations before calculating the price of a product
👉 Define who you want to sell to
Wholesalers, distributors, final consumer? Many entrepreneurs start with a retail price and, when stores appear (wholesale market), they do not have defined what discount applies to the retail price or what commercial conditions to establish.
👉 Research the margins of the market where you want to sell
One of the most common mistakes is to get prices without, previously, having investigated what margins are handled in the market. Therefore, keep in mind that each market generates different margins and you need to investigate it before launching to sell your products.
Methods for calculating the prices of a product
For wholesale sales
When it comes to wholesale sales, there are 3 methods to determine the sale prices of products:
- Absorption prices: all costs are reflected in the price of the product.
- Differentiated: it has to do with the acceptance of buyers. Price is what customers are willing to pay for a product.
- Mixed strategy: Different prices depending on whether the sale is wholesale or retail.
For retail sales
When it comes to retail alone, here are 3 of the most commonly used pricing methods in business, regardless of industry.
- Based on costs or gross profit: in this case, a specific margin is established that is added to the cost. For example, if my cost is $500 MXN, and my policy is to sell 100%, my product will be worth $1,000 MXN.
- Based on the competition: here you have to ask yourself some questions such as: are you a price setter or a taker? If brand X raises the price, do you raise it? If it lowers it, does your brand lower it more?
- Based on demand. In this case, the price is set in relation to the perception of the final consumer, taking into account how much they are willing to pay for your product. There are two ways to calculate the cost of a product using this method:
- niche strategy: The price that is established is high, although the sales are scarce, the profit margins will be higher.
- volume strategy: Low prices are set with a high volume of sales in mind.
Despite being different methods, the ideal is not to opt for one or the other, but to combine the 3 formulas. This tactic is the one that will be most effective for you.
Remember that in a product line, they may not all have the same profit margin and it is an analysis that you have to do with each particular product. A product you make will obviously not have the same margin as one you make.
💡Important: a product that gives you the desired margin, but that is at such a high price that your final consumer is not willing to pay, does not make sense. Nor does a good price for the consumer and a very low margin for the producer make sense.
Other formulas to calculate the price of a product
- keystone price: Doubles the wholesale cost to determine the selling price.
- multiple prices: Sell multiple products at a single price.
- discount prices: seasonal discounts to increase store traffic.
- psychological prices: prices that end in 9, since they tend to have a positive perception.
- anchor prices: Lists selling price and original price to quantify customer savings.
- Price for the value of the brand: a product can have not only functional and perceptible benefits, but also a symbolic and intangible value, such as the value of an already established brand.
So how do you get the selling price of a product?
To know how to obtain the sale price of a product in a simple way, we present the following formula, with the brand percentage being the profit margin that the seller considers according to the value of the brand:
Sale price = x 100
If you are looking to create a personalized formula for your business, we delve into some concepts and we recommend answering these questions as an exercise:
- What are the price levels/bands in the market?
For example: if you sell stamped mugs, it is useful to know how much the cheapest ones on the market cost and the most expensive ones sold in shopping malls. This way you will know what the average price is. - Who is the cost leader?
That is, who has the lowest price in the market. - Who make the difference?
What brands add value to that mug, what makes it stand out from the competition. - What pricing policies do competitors apply?
Beyond investigating how much your competitor sells the cup for, investigate if they establish one in this regard. For example, if you offer a discount for purchases greater than a certain amount or pieces. - What is my variable cost to produce one unit?
Variable costs are those that are modified according to variations in the volume of production, that is, the higher the volume of production and sales, the higher the variable cost.
For calculate the price of a productyou first have to know what the variable cost of producing each unit is.
It would be ideal that before setting a price you are very clear about all the costs of a certain object, calculating not only the cost of the raw material, but also that of the packaging, labor, etc.
conclusion
As we have seen, there are different ways to know how to calculate the selling price of a product. Therefore, do not forget to take into account all the elements that we mentioned before and use the free template to calculate the cost of a product.
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