Money is a pretty weird concept if you think about it for a little. It does not exist, money exists because people believe in it, and yet it is a central part of society. You do not need money to be happy, but you will need it if you want any kind of basic commodity or even health service depending on where you live.
The most common way of earning money is by selling products or services. This practice is really common and has been a thing way before capitalism. When it comes to pricing your product, it becomes a big question. With this easy guide, you should be able to get a better understanding of this process and be able to make the right judgment about the worth of your products or services.
Knowing the costs
When it comes to pricing, you will need to know what happens before your product comes to be. Every step of making your product will cost money, it is not just this exact process or the other process but every single one of them, and you need to keep them in mind. Some of these steps include the material price, the time it takes to be made, logistics, quality checking, and so forth.
Determining the costs of services is a bit trickier. When it comes to a product, you can calculate the aforementioned processes but for services, it can not be that exact. One of the most important things when it comes to services is pricing your time. What is the worth of your time? Can the amount of time spent on a job give back the money spent on the space you bought, the fuel spent for a delivery or a drive, or the tools you use? These are some of the questions you should be asking yourself when judging your hourly worth.
Markup
By calculating only the costs of production or recovering the invested time and resources, you will get the money to be just at the bare minimum. In order for your business to grow and for you to actually make money, you need to add the additional markup fee. This is where the most important decision comes into place.
There are many models you can follow when it comes to deciding the markup. Choosing which one you will take depends on how much you are willing to gamble for profits. There are safe choices, and some with higher risks but also higher rewards.
A safer option, look at competitors
By making your price close, if not the same as your competitors, you can expect to earn a safe amount of money. You will not need to worry about marketing strategies and big risks, you go with the flow and adjust to it. This option is usually omitted from consideration, as everyone thinks they are an entrepreneur. It is largely engraved in everyone’s mind that you need to be at the top when it does not need to be the case. If you just want to live simple, this option is the right one for you.
A riskier option, be beyond everyone else
Let’s say you are a pastry maker, and you decide to make only the highest quality pastry there is. You are using only the highest quality wheat, best class butter, milk from cows that live on a real ranch, and so forth. Your pastries are a true luxury, you want to not only repay for the costs but also expand your bakery. In order to do so, you need to mark up the price, causing the price tag to be so big that it becomes a symbol of wealth to buy your pastries.
This model can be a big risk, especially if you are starting from scratch. No one knows about these pastries, and it is a question if it is worth even trying them. If your products or services are known by something else, then you can start using this model safely. That way, the consumers will know what they are getting into and that they will not just lose money for tasteless pastry.
The inverse option
You can do the opposite if you are selling something really cheap. If your products or services are something that is of lesser quality, you will need to compensate this with quantity. If you make some cheap jewelry, people will buy it because they can afford it. With every piece sold you gain a little sum of money, but that will add up.
Pricing medications and health services
When it comes to these kinds of products and services, a lot of people tend to be greedy. The big pharma companies like to get money from people who are in grave danger. Life is priceless yet when it comes to life and death, these companies will gladly put a price tag on it. If you are in this kind of situation where you have a patent on medication or treatment, do not put an exaggerated price on them just because you can.
Another don’t of pricing, repair rights
It has become a trend for big industries to put exclusive rights to fixing something. The most notorious examples of this are Apple and John Deere. With limiting repair rights on their products, they have created a really bad image of themselves. Even though this is something you would expect to give you profits, it is doing the opposite. People will always find a way around something, so do not bother to price something that does not have to be priced in the first place.
Money is a very confusing thing which is yet very important in everyday life. In the end, you need to find a way of making it somehow. By pricing your products and services in a smart way, you will definitely be able to make it. There are many strategies out there, and this field of economy and marketing is vast. There is no simple answer to this, and how you choose to do so will depend on your situation.
By opting for a safer option to be similar to your competitors, you can expect to make a sustainable amount of money and live easily. Riskier options involve making a calculated gamble with your product or service, expecting some big profits. You also need to watch out for the don’ts of pricing, as these mistakes can have a negative impact.