“How much does this cost?” It’s one of the most common questions your customers will ask you. That’s why how to price your product or service is one of the most important business decisions you can make when starting a business.

Here are three ways (and a bonus tip) to price your products and services.

1. Use your competitors’ prices.

Pricing your product within the range of your competitors’ prices is the easiest pricing strategy.

Doing a Google search or visiting local businesses in your industry and using their prices can work for your new business.

But this strategy might become a little more complicated if you have a unique business idea, or you have a set of products or services that aren’t like what your competitors offer.

For this situation, you can decide what to charge customers for your business’ extra products or services.

2. Add a profit amount per item to the product’s cost.

Some entrepreneurs add on a desired profit amount to the cost per item to set their prices.

For example, let’s say you’re designing and selling T-shirts for your new business. It’s costs you about $4.50 to design one T-shirt and you want to make a profit of $15 per shirt.

You could then charge $19.50 per shirt. Your customers might agree that this is a fair price to pay for one of your T-shirts.

Or your customers might think this price is too expensive. This situation is why the profit plus product cost strategy doesn’t work for all entrepreneurs and businesses.

3. Use your competitors’ prices and cost per item.

Combining the previous two strategies works for many entrepreneurs, especially if they have a product or a service that’s significantly different from what they’re competitors offer.

This is why some new entrepreneurs will start by adding a modest amount to the average or low-end cost of their competitors’ prices.

A new entrepreneur could then base this extra cost on how much time and money is spent on creating a product or providing a service for a customer.

4. Bonus Tip: Keep experimenting and be open to adjusting your prices.

New business owners should experiment a little with pricing their products and services. Be willing to raise or lower your prices to see if you can bring in more money.

For example, your customers might easily adjust to paying more for your product or service.

On the other hand, sometimes slightly lowering your prices can bring in more customers which can boost your business’ profits. See more budgeting tips.

Final Thoughts on How to Price Your Product

There are three ways to price your product or service.

  • Use your competitors’ prices
  • Add a profit amount per item to the cost of providing a product or service
  • Use both the competitors’ prices and cost per item.

Also, don’t forget to experiment with the prices you set for your products and services. Learning how to adapt prices and other parts of your work is key to growing a successful business.

Photo by Rajiv Perera on Unsplash