How to Price a Product in 3 Simple Steps | Page Flows (2024)

Making appropriate pricing decisions is one of the most impactful tasks business owners have.

Such a decision will affect the percentage of profit your business makes and the size of its customer base.

Given the significance and abundance of pricing strategies, it’s easy to feel overwhelmed when pricing your products.

In today’s guide, we’ll help you navigate the murky waters of superior pricing strategies. We’ll show you how to price a product in such a way that maximizes the financial potential of your business.

What Is Product Pricing?

Of course, product pricing seems pretty self-explanatory on the surface – it’s the process of choosing an appropriate product price.

However, product pricing is a little more complicated than simply attempting to boost your profit margin.

When determining the correct product cost, you must consider both internal and external factors.

Factors That Affect How Products Are Priced

Below, we’ve explored some of the factors you should consider when clarifying your products’ quantitative value.

1. Production Costs

Production costs encompass every expenditure that relates to the production and delivery of your products.

For instance, your production costs should include the raw materials you use, like drawing supplies, if you sell artwork. They should also include labor costs, manufacturing costs, and overhead costs.

Break down each of these components. Factor in the quantity of each component you use in each unit you produce. That’s how you’ll work out the cost of production accurately.

2. Your Competitor’s Prices

Like how UX researchers conduct user research to familiarize themselves with their users, you should acquaint yourself with your competitors.

Research and analyze the prices of similar, comparable products that your competitors offer. By doing so, you’ll acquire valuable insights pertaining to the price range your target audience will pay for similar offerings.

Evaluate the quality, features, and unique selling points of your competitor’s products – these factors will affect your own pricing strategy.

3. Your Value Proposition

A value proposition is a short, simple statement that communicates how your product will benefit prospective customers.

Since your value proposition expresses the unique benefits of your products, it can influence your customer’s willingness to pay.

When your products have a distinct benefit, for example, the can solve a pain point, you have the flexibility to charge premium prices.

For that reason, you need to do brand research to identify what sets your products apart from other similar products. What sets you apart from your competitor’s products is your value proposition.

A good way to find your value proposition is by conducting market research and competitive analysis. You should also evaluate customer feedback.

4. Your Marketing Strategy

You should consider how your marketing strategy will impact your pricing strategy.

Let’s say your product strategy relies on regular discounts and limited-time offers.

Discounts and limited-time offers can create a sense of urgency, prompting customers to make purchases swiftly. In other words, they would prove valuable when it comes to increasing your sales volume.

However, running frequent discounts can negatively impact your profitability if you don’t factor them into your pricing strategy effectively.

You must ensure your marketing strategy coincides with your pricing strategy in such a way that maintains your profitability/sustainability.

For instance, you could create personalized discounts and offers for particular segments of your customer base.

5. High Demand/Low Demand

If your product is in high demand, it’s wise to take advantage of its surge in popularity. Put differently, you should price your product as highly as the market will allow.

If necessary, you can always reduce the price as the demand declines. Similarly, if your product is in low demand, you can generate demand by offering discounts or rewards to your customers.

For example, you can create multi-product offers (buy one, get one free), loyalty programs, or even social media advertising campaigns.

In either instance, you should prepare by knowing your overall market trajectory.

Ask yourself if you expect your product’s demand to increase steadily or have peaks and dips.

6. Your Brand’s Position in the Marketplace

Introspection is essential when determining your products’ selling price. Specifically, along with your brand research, you need to evaluate your brand’s position within its marketplace.

You should ask yourself the following questions:

• Do I want to own the most expensive, high-end brand within my industry?
• Do I want to celebrate utmost affordability and own the cheapest brand within my industry?
• Or is it better to find a position that fits somewhere between those two extremes?

Once you have an idea of where your brand fits into the market, you can clarify the ideal product price.

7. Your Profit Margins

Needless to say, you should consider your profit margins when finding the perfect pricing strategy.

Above all else, your pricing strategy should suit your business’s objectives and appear appropriate to your target audience.

Simultaneously, your pricing strategy should also allow you to earn a reasonable profit margin and ROI (Return on Investment).

The Types of Pricing Strategies You Need To Know

Knowing about the factors that impact your pricing strategy will help you find the perfect one for your brand.

However, what will help you even further is knowing the different types of pricing strategies you can adopt.

Below, we’ve explored some of the most common and popular pricing strategies.

1. Cost-Plus Pricing

Cost-plus pricing focuses on the costs of producing your product or your cost of goods sold (COGS).

Using this strategy, you’ll calculate the fixed and variable costs of the manufacturing process.

Then, you’ll apply a markup percentage to the overall costs based on how much you’d like to profit.

2. Value-Based Pricing

Value-based pricing determines the price of a product by using the customer’s perceptions of the product’s value.

In other words, value-based pricing allows brands to price their products based on what their customers are willing to pay.

3. Dynamic Pricing

Dynamic pricing is a flexible pricing strategy that focuses on variable costs rather than fixed costs.

Specifically, with dynamic pricing, you’ll base the price of your products on external factors. These factors may include current market demand, seasonality, supply changes, competitor pricing, and supply changes.

The idea behind dynamic pricing is that you can quickly adjust your product’s prices in response to real-time market fluctuations while also making products that users love.

4. Tiered Pricing

Tiered pricing is a pricing strategy that allows brands to offer different discounts or benefits.

These different price points reflect the quantity of products that customers purchase. Alternatively, each tier will represent the amount of features that customers can utilize when using the product.

These tiers allow customers to choose a pricing plan that best suits their needs.

How Do You Determine the Price of a Product?

It’s time to answer the ultimate question – how do you determine the price of a product?

Below, we’ve provided a simple step-by-step guide to help you discover the perfect price for your products.

1. Establish the cost of manufacturing your products. Note all production expenditures, including material, labor, and overhead costs.
2. Make notes and regularly monitor the variable prices and fixed prices within the manufacturing process.
3. Determine the amount of profit you wish to earn using a desired profit calculator.
4. Conduct customer surveys and other research methods to understand your customer’s needs, pain points, demographics, motivations, and budget consciousness.
5. Research your competitor’s products, features, pricing strategies, and customer reviews. This will help you shape your own pricing strategies.
6. Choose a pricing strategy that suits your brand’s unique needs.
7. Monitor and adapt your pricing strategy as necessary (it’s incredibly unlikely that you’ll set your prices once). Keep an eye on the factors we’ve discussed today that will affect the prices of your products.

How To Calculate the Selling Price of a Product

Hopefully, you now know how to price your product successfully. To keep you on the right track, we’d like to reveal how to calculate the selling price of a product.

Before we do, however, you need to know about the actual selling price formula and the average selling price formula.

Actual Selling Price vs Average Selling Price

The actual selling price refers to how much the buyer pays for your product/services.

This price can vary depending on how much the buyer is willing to pay. It can also vary depending on how much the seller is willing to accept and how competitive the price is.

An average selling price (ASP) is the price at which sellers typically sell a particular class of products.

Your product’s ASP can serve as the benchmark for your pricing strategy.

The Actual Selling Price Formula

To work out the actual selling price of your product, use the following formula:

Cost Price + Profit Margin = Selling Price

The cost price refers to the amount of money a retailer pays for a product. The profit margin is a percentage of the cost price.

Let’s say your product costs $100, and you want to earn a 30% profit margin. The formula would then look like this.

$100 + (30% x $100) = Selling Price

$100 + (0.3 x $100) = Selling Price

$100 + $30 = $130

As you can see, $130 is your selling price.

The Average Selling Price Formula

The average selling price formula looks like this:

Total Revenue Earned By A Product ÷ Number Of Products Sold = Average Selling Price

In this scenario, you have made a total revenue of $20,000 by selling 100 of your products.

The formula would then look like this:

$20,000 ÷ 100 = $200

So, your average selling price is $200.

How to Price a Product: Final Thoughts

The key takeaway from this guide is that no matter what pricing strategy you use, you must ensure to do your research thoroughly.

Consider all of the factors and strategies we’ve discussed today, and you’ll find the perfect pricing strategy in no time.

However, the journey toward creating a successful brand involves more than pricing – you’ll need design inspiration, too. For this, you’ll need a resource tool like Page Flows.

We specialize in collecting common but crucial user flows, covering everything from onboarding to purchasing and ordering. Best of all, we collect these recordings from incredibly successful brands like Disney, Google, and Sonos.

What’s more, we collect emails when we record user flows, so you know precisely how to communicate with your users.

Now that you know how to price a product, create the next benchmark for successful designs with Page Flows.

Get started today to access the secrets to a successful, user-centric brand.