How Much Should I Charge?
Now that you know what you’re going to sell, how much are people willing to pay for it? How much am I willing to charge for it? How much does it cost to make? It makes absolutely no sense to charge people $3 for a product that cost $5 to make. You’ll be out of business faster than you can blink. This is another reason why research is so important.
When you research your industry look at the kinds of products that are already being sold. Are they similar to your product? What are the prices? Is there a range? Is there an industry standard? What will my profit margin be?
The best way to price your product is to first figure out how much it will cost to make and determine a supply chain. A supply chain is simply how you get the product into the hands of your customer. Does the customer go to a store to buy it? If so, how much will it cost to make the product and ship it to the store? Do people buy it from you online? If so, how much of my product will I need to buy to keep it in stock? How much is shipping? Can orders be made on-demand?
Once you’ve determined your supply chain and how much it costs to make your product and get it to your customers then you can set a profit margin. A profit margin is the difference between the cost to make your product and the price of your product. If you wrote a novel and it costs $5 to print the book and you sell it for $9 then you have a profit margin of $4/book sold.
Your profit margin can be whatever you want it to be depending on the price that you set. If it costs $15 to make hoodies and you sell them for $15o you can totally do that. Will people buy it? That’s a different story. There are many high-end fashion designers who sell their products at high prices. However, people also think that the designs and prestige of the brands are worth paying those high prices.
Once you’ve determined your supply chain costs and set the desired profit margin, look at your industry prices for similar products. Can you sell your product at those prices and still make a profit? If not, then compare your product to the market and start thinking like a consumer. Does your product offer more than the other products on the market? If so, then you can justify charging more. The added value is what people are paying extra for. It’s the reason why people pay more money to sit front row at a concert. Being close to the artist adds value to the ticket so they are willing to pay more.
Determine your supply chain and how much it will cost to make your product. Set your profit margin. Research your industry and figure out how much you should price your product. Does your product fall within industry standard pricing or will it cost more? If it costs more, then write a paragraph justifying why your product is worth the extra price. Record this in your notebook.