Have you ever heard that price is different from value? When you take advantage of a promotion, you can pay less for a product worth a lot. This is thanks to a discount. It may seem like a simple detail, but knowing how to prepare the sales price for something is a critical task. You could even say that this moment is decisive for the company’s financial health.
If a business prices a product lower than it should be, its revenue and profit are out of date. The problem also happens when something is sold at a fair price.
Certainly, it will sell little, and it won’t make any sense for the consumer to pay what is being charged. Did you see how important it is to have balance in this relationship?
This post will show you how to achieve this, pointing out which factors need to be considered when putting a sales price on something. Continue reading!
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What is the selling price of a product?
The selling price of a product is how much the company wants to receive for it. In other words, a product that costs a lot is not exactly good, much less the best on the market. The same logic applies to items that cost less.
The price only determines, from a commercial point of view, how much it is interesting for the company to charge, thinking about costs and revenue. Every company that aims to make a profit needs to have a return for what it offers as merchandise. Therefore, the concept of price exists.
Within this number that is linked to a product, there are some factors included, the main ones being:
- Cost of production or acquisition of the product (in the case of a retail reseller);
- Added value of the product;
- Company maintenance costs;
- Average market value;
- The intended profit margin for each unit sold.
Most of the time, inadequate pricing happens when a company is unable to identify everything that makes up the price. In these cases, the only factor considered is the market average.
However, even though it is a good basis for comparison, it does not mean that the price will be the best. The reason? Each company has its costs, and strategic objectives, among other particularities.
How important is it to calculate it correctly?
Knowing how to prepare the sales price makes a difference in helping a company achieve goals and objectives. Good results are linked to planning that considers many issues, mainly those linked to the company’s survival.
There are also some other good reasons to calculate the sales price correctly. We explain!
Product valuation
Have you ever thought that selling a good product for a price well below the market is a way of devaluing it? After all, if something is worth much more, why won’t your company do what is currently being charged? Acting this way is almost shooting yourself in the foot, which no one wants. But sometimes, a mistake can lead to this situation.
All a business needs is to show its consumers that everything it sells is the best possible product. So, prices that vary a bit and follow the market average show that the item is valuable. But of course, small variations will happen. The important thing is to know clearly how much you can increase or increase this price.
Fair competitiveness
Market competitiveness exists, and a company always wants to relentlessly beat its competitors. This is completely acceptable and fair. However, it is different from a lack of ethics.
The consumer will never buy from your business if another company is selling the same product at an extremely lower price. This is why keeping to the average is ideal.
There must be this difference between prices so that each company can find its space within the market. However, very high disparities will generate discomfort among competitors and can leave the market unequal and unfair. From an economic point of view, it is very difficult for you to be able to lower the price that much and still make a profit on your trade.
Business sustainability
Companies have costs and expenses that are essential for their operation. It is necessary to pay employees, pay taxes, invest in advertising, and continue producing or purchasing products from suppliers.
This all costs you money, and what will cover all that amount is the return on your sales. Therefore, the price must take into account each of these points.
A sustainable company, that is, capable of maintaining itself in the long term, has a solid basis in product pricing. After all, it is from revenue that the money comes from to keep the business running continuously.
Therefore, when knowing how to prepare the sales price, you cannot fail to consider the costs that keep the company financially healthy.
How to calculate the selling price of a product?
In this topic, we will show you what factors you need to evaluate to define the ideal selling price for your products. Discover!
Calculate expenses
Time to put everything on the tip of a pencil! Your company has well-defined costs, and you can know what they are. Therefore, list all your monthly financial obligations and evaluate how much you spend on each of them.
Therefore, you will know what percentage, per product, you need to withdraw to direct each of these expenses that make the business work. To help you identify and calculate your expenses, here are some examples:
- payroll;
- raw material costs;
- costs of purchasing products from suppliers;
- expenses for water, electricity, internet, and other fixed providers;
- the monthly cost of renting offices and stores;
- fixed taxes that need to be collected monthly and annually;
- product taxes.
Evaluate competitors’ prices
Always keep an eye on the prices charged by competitors. Understand not only how much these other companies are charging, but the variation in these numbers.
It is important to know whether the product in question is on the rise or in decline. This will also be of great help in having a revenue perspective, something that will make your planning more solid.
It is worth evaluating what company this is and what target audience it covers. You won’t always be looking at a direct competitor, meaning your price won’t be the same.
Still, it’s a great observation to make so you understand who you’re competing with. This study must be carried out continuously to guarantee a qualified analysis.
Do market research
Market research should be aimed at understanding your consumer’s behavior. For example, it is important to maintain an attractive price for a product that is in high demand and always has high sales rates. Having this perception, through numbers, will always allow your business to have a good revenue margin within the appropriate price.
Another point to be observed in these surveys is seasonality. Some products tend to vary in price according to the time of year or even the week within the month.
These changes are used to ensure that an item is not left stranded, or to take advantage of a period when demand is greater and, in this case, sell it more expensively to have a greater profit margin.
Understand your competitive differentiators
Do you not only believe but know that your product has quality and is highly competitive with other companies? Therefore, this must be reflected in the price charged for it.
This means recognizing the value and ensuring that the price is fair, according to the differences that it is capable of bringing to the market. If you don’t do this, you risk devaluing what you sell.
Every product conveys a clear message in its price. If it is much cheaper than the same item, but from another brand, this means that its value is not that high. In other words, its quality is not competitive.
Therefore, always know how to analyze these differences that make your product worth more. This way, you won’t price lower than you should!
Set the profit margin
Your company certainly knows precisely how much profit it wants to make per month. However, this profit is obtained for the value of thousands of sales, not just for one product.
Therefore, the profit calculation must be applied to each item. In other words, the price charged must cover all costs and, in addition, the profit margin per item.
It turns out that there is no rule for this profit amount. Everything will depend on your commercial strategy and your company’s need to generate profit.
For example, some businesses achieve high-profit margins on a single product. In this case, they are not concerned with selling a lot, but with selling well. It is important to know your place in the market and, therefore, define your strategy and profit margin.
What are the advantages of following these tips on how to prepare the sales price?
Recommendations on how to prepare the sales price can put your company in a prominent place. Among the main advantages you will enjoy are:
- secure strategic growth;
- gaining customers in the medium term;
- market competitiveness;
- strategic profit margins;
- financial security;
- business sustainability.
Knowing how to prepare the sales price does not need to be a challenge if the company understands exactly what should make up these numbers. Thus, strategically and with a focus on sustainability and business development, it is possible to know how much to charge for what you sell.
How about, now, understanding in more depth the difference between the price and value of a product? Clear your doubts about these two concepts!
