You’ve just made an awesome discovery about some cool technology or service that people will love. You want to get into business with it but before you go full steam ahead, there are two questions you need to ask yourself. The first question is whether this product would be profitable enough to support your time as its owner/operator. And the second one is whether the market demand for it justifies spending money to promote it. If not, then don't waste any more time trying to figure out how much it costs to produce—just move on to something else!
The truth is that almost everything has a fixed cost associated with manufacturing, packaging, shipping and marketing it. But even though these things may vary from industry to industry, they all add up to less than you think when compared against the overall value of the end-product (your product). This article will help you understand how to price your product so that you maximize your profits while minimizing your losses.
Price isn’t always easy to estimate because it depends upon many factors including production cost, customer demand, competition, inventory turnover rate, brand awareness, etc. To simplify the process of determining the price of your product, you could use the following formula which calculates the average retail price based on four key variables: Cost per unit, Competition factor, Market share, and Brand Awareness.
Cost Per Unit = Product Price x Number Of Units Sold X Average Selling Volume / Number of Months In Inventory
Competition Factor = Average Retail Sales Price – Average Wholesale Sales Price
Market Share = Total Revenue From All Competitors / Total Revenues
Brand Awareness = Total Customers Who Know About Your Products
To apply this model to your own situation, you must choose three values from each category listed above. Then simply plug them into the equation below where n stands for number of months in inventory. For example, let’s say you decide to charge $20 for a digital camera lens cover. Based on your calculations using the formula mentioned earlier, you will arrive at the following results:
Product Price = 20 dollars
Number of Units Sold = 10,000 units
Average Selling Volume = 100 units per month
Inventory Turnover Rate = 1 year
Using those numbers in the equation above, we come up with the following:
$20 x 10000 x 100 / 12 = 220000 dollars
220000 - 20000 = 80000 dollars
80000 dollars divided by 365 days in inventory gives us a monthly average cost of 40 dollars. So, our final result comes down to $40 per item sold. Now, you might think that this calculation doesn’t tell you anything useful since it only shows you the total amount you will lose in case you run out of stock. However, remember that it also tells you how much you stand to gain once you fill up your inventory. It simply takes you through the entire sales cycle and helps you decide how much you should set your price point.
Here’s another way you can evaluate the profitability of a given product. Take a look at the list below and answer the following questions:
Is the product innovative, unique or different from other similar items already available in the marketplace?
If you answered yes to every single question, then congratulations! You now have a winner worthy of promotion. If not, however, you might consider doing some research to learn why your potential audience dislikes the current version of your product. After gathering enough data, you could try improving on your offering until you reach an acceptable level of satisfaction among your target audience.
Now that you know how to price your product, you still have a lot to worry about. What makes a product popular with consumers? Why does it sell well? Is it better than competitors? How long will it last after being purchased? These types of questions can usually be answered by asking your target audience. They are the ones who buy your product and therefore, they hold the answers to your success. There are several ways to gauge their opinion, such as surveying them via surveys, conducting focus groups, analyzing social media comments, reviewing reviews and testimonials posted online, etc. Once you gather information regarding the popularity of your product, you'll be able to optimize it accordingly making sure it sells like hotcakes.
There are no hard rules when it comes to setting prices. Every company operates differently depending on the type of goods and services offered. Some companies operate on a “pay as low as possible” policy whereas others keep prices high due to the fact that they have to recoup their investment. Ultimately, deciding on the best strategy to follow all boils down to knowing your target market and your goals. If you want to grow fast, then you need to cut corners wherever necessary and focus on maximizing profits. On the other hand, if you're looking to build a sustainable business, then you may want to give priority to quality rather than quantity. Either way, price plays an important role in the growth of your business. Make sure you figure it out properly so you can avoid unnecessary expenses.
1) Calculate Your Sales Volume
If you're selling anything online (or offline), you'll have to determine the value of each sale.
First, calculate total number of sales units sold over last 12 months by all customers.
Next, compare these numbers against average monthly revenue per customer (ARPU)
Finally, multiply ARPUs and divide them by Total Number of Units Sold to arrive at Average Revenue Per Unit (ARRPU). This is your unit cost or wholesale price. It represents the minimum amount of money you should expect to make from every sale, assuming no expenses incurred during production, distribution, marketing, etc.
Example 1: A Company Makes T-Shirts
Let's say you've decided to start up a clothing company and decide to sell t-shirts through Amazon. In order to figure out how many shirts you need to produce, you'd take the following steps:
Calculate the total number of t-shirt orders placed over the past year.
Compare those figures against the average monthly purchase volume for t-shirts on Amazon.
Multiply the above figures to come up with the estimated annual sales volume.
Divide the annual sales volume by 365 days to give us the approximate weekly sales volume.
Now we add up all the individual weekly sales volumes and divide by 7 days to get our daily sales volume.
Lastly, multiply the daily sales volume by 24 hours to obtain the hourly sales volume.
(Note: For simplicity sake, let's assume that you only sell t-shirts.)
In reality, you could probably buy better quality materials than using cotton (which is why most companies use polyester instead). But even if you used silk fabric, which is 100 times softer than cotton, you still wouldn’t get away without calculating the ARRPU because you may end up losing too much money
If you're looking to sell anything online -- from clothes and furniture to electronics and gadgets -- then it pays to understand exactly how much people are willing to pay for them. You could try asking around and seeing if anyone wants to buy your stuff (this works well with things like used books). But sometimes this isn't helpful because no one will admit they want to buy something but don't have the money to spend at that moment. And even when someone does say yes, they may not tell you their budget so you won't know whether or not your item would fit into theirs.
You might also use surveys to get some insight into what people think about certain items. However, as we all know, these aren't always accurate, especially since our opinions change over time. For example, many years ago, most people thought having a cat was bad luck, and now almost everyone thinks dogs are cute. So while they still believe cats bring bad luck, they've learned to love pets instead. The same goes for other objects such as cars, phones, and computers. It makes sense why people wouldn't just list "I hate cats" every single time they took a survey about pet ownership.
So where does that leave us? Well, there are several ways to figure out what something is worth to customers. We'll look at three different ones below. Each method has its own strengths and weaknesses, so choose which one best suits your needs. If you need more help determining how much something costs, check out these tips for finding the cost of everything.
There are two main methods for figuring out the value of any object. First off, you can ask others. This usually involves talking to friends and family members who already have similar items. They can give you a ballpark estimate based on what they paid for it, or simply share information about what they'd consider buying it for.
The second option is to use websites and apps that offer data-driven insights regarding prices. There are plenty of sites that provide this kind of info. Some examples include PriceGrabber, eBay, and Amazon Marketplace. These sites allow users to post product reviews and photos. Once someone buys the item, you receive payment via PayPal. Then, once you accept the sale, the site reports back to you with details including the seller name, price, shipping charges, etc.
Yes! Two popular websites for helping consumers determine the market values of various products are Quora and Kijiji. Both websites let you search by keyword, category, brand, etc., to find listings of specific items. You can filter results to show only sales within the last 30 days or view only pictures. After selecting a listing, you can click through to read testimonials and contact the seller directly.
Both sites claim to offer unbiased feedback on sellers' products. In fact, Quora says it offers users access to millions of verified profiles across multiple categories, making it easy to connect with buyers and sellers alike. Kijiji claims to have 100 million active ads posted daily by 10 million vendors. To date, both sites have amassed hundreds of thousands of positive ratings and reviews.
These websites work great for small businesses looking for quick quotes to compare against each other before deciding on a final price. Or perhaps you're trying to decide between two similar brands, models, sizes, colors, etc. One way to narrow down choices is to go shopping together using either of these tools. When comparing options, keep in mind that the buyer determines the price. Don't feel pressured to agree on a purchase until you're sure you're getting the deal you were hoping for. Also, remember to factor in delivery fees, taxes, and other hidden costs.
Yes! Similar to the websites above, there are numerous apps available that report back to you with detailed information on the value of an item. Popular ones include TrueCar, Swappa, Craigslist, eBay, and Google Shopping. Most of these apps require you to sign up first, though some will happily send you emails without registering. The process varies depending on which app you pick, however. With TrueCar, for instance, you create an account and enter credit card information.
Once you log in, you select the car you wish to research. Next, you can browse listings from dealerships near you, and save those you like to build a profile. When ready, you can request bids from interested buyers. The app lets you set a maximum bid amount and minimum bidding increment. Finally, you can negotiate with potential buyers privately or publicly. Many times, the app handles negotiations automatically.
When researching an item, note the following points:
And finally, after you complete the transaction, here are a few key questions to ask yourself:
1. Understand Your Competition
Before you start thinking about pricing your items, you need to think about who else might be selling similar goods on Etsy.
This means checking through other shops' listings, reading reviews of those sellers, finding out which ones seem popular by visiting their websites, and searching eBay using keywords related to the type of item you plan to sell. You'll also want to research various sites such as Amazon, Google Shopping, Craigslist, Facebook Marketplace, and Kijiji where you can compare prices quickly and easily.
You'll notice that some sellers charge more than others, while others offer lower prices. This is why it's important to learn how to properly value a good before deciding on its price tag. Once you've determined the average price, you'll be able to determine if your product is overpriced or underpriced relative to competitors.
"The first thing you should always do is make sure you’re charging enough," says Christine Lister, co-founder of Shopify, "because otherwise you’ll never get any sales." With this mindset, you should only consider lowering your prices once you feel confident you aren't losing too many customers due to low prices.
Once you've found out what your competition charges, you can use these tips to help you figure out what your own products are worth.
Start by figuring out what kind of profit margin you'd like to make.
Then calculate the cost per unit sold based on the number of units you expect to sell each month.
Finally, add 10% to 15% onto that amount to account for expenses (such as shipping costs) and taxes.
Determine the lowest price point you'd be comfortable offering.
Find out how much your competitor offers at that price point.
Add 5%-15% off that figure to cover for your profit margins.
Set your price accordingly.
For example, let's say you wanted to
Selling anything online or offline comes with its own set of challenges. You need to know that what you're selling will appeal to consumers who are willing to pay your asking price. If not, you'll end up losing money instead of making it. And this applies even if you have years of experience as a seller.
Many retailers spend countless hours researching which items they could possibly sell at a high margin before deciding on their final prices. This takes time, effort, and expertise. But when all else fails, here are some tried-and-true strategies to help you come up with a price tag that makes sense.
To get started, let's look at one example from my past experiences: finding the value of antiques. It was difficult because many antiques were too old to appraise properly by professional art dealers. So we needed another way to estimate their market values -- one that didn't involve costly trips to museums (or even more expensive ones) where experts would tell us what our items were actually worth.
I had heard about "vintage appraisal" websites like Pawn Stars and Antique Roadshow. They give viewers a glimpse into how people paid for these items back then. I thought maybe I'd try those sites out to get a general idea of what things might be worth today -- but nothing came close to being accurate. The numbers just weren't comparable. For instance, the average cost to buy and resell a 1970s couch on eBay was $1,600! That seems very low compared to other furniture pieces sold during that era.
So I decided to conduct my own research using Google Trends data to gauge consumer interest. After analyzing several different key words, I found that the top searches were related to "used cars." These keywords also correlated well with the number of times each area searched over the last five years. From there, I looked at historical car sales figures to further extrapolate the potential demand for used cars. Based on those findings, I estimated that used car valuations were somewhere between 5% and 10%.
With that information, I knew that I could safely charge 15%-20% less than what I originally expected to receive for specific types of antiques. I realized my mistake after learning that the same method worked for any type of item. In fact, the same approach has been applied successfully to everything from artwork to jewelry.
There aren't apps specifically designed to help you price your goods. However, there are plenty of ways to use technology to assist you in determining fair prices for your inventory. Some options include:
Google search trends: Similar to the strategy above, you can analyze search patterns to learn what prospective buyers want. Then you can use this knowledge to create better marketing campaigns.
Historical auction records: To figure out what similar items currently fetching bids on eBay, check out the site Bid History. There's no guarantee that your item will go for exactly the same amount, but it does provide insight into what others think your object is worth.
Social media analytics: You may already be doing this yourself. Take a few minutes to review the posts from your social accounts. What kind of content gets the most engagement? Who comments most often? How long did it take your followers to respond to your messages? All of these metrics give clues to what's important to them and therefore what they're willing to pay for.
Analytics tools: Many businesses offer software solutions to help sellers understand what's working best for them. Look for platforms such as Shopify, Weebly, Wix, Squarespace, BigCommerce, Magento, and WordPress. Each platform offers features that allow customers to easily post items and track performance statistics. Once you've analyzed your results, you can adjust your business accordingly to maximize profits.
You don't necessarily need to rely solely on technological methods to uncover what your audience wants to purchase. A good rule of thumb is to ask friends and family members what types of objects they would consider buying. Ask them why they choose certain brands, colors, sizes, styles, etc. When you hear their responses, you'll begin to notice common themes among your target markets. Use this feedback to refine your offerings.
Once you decide to start selling your wares, it becomes easier to narrow down what you wish to focus on. Consider taking photos of your merchandise so you can refer to them later while writing descriptions. Also, keep notes of your initial conversations with interested shoppers. By jotting down details like what questions they asked you, what prompted you to reply, and whether or not you felt comfortable answering these inquiries, you'll gain valuable insights into how to speak authoritatively about your business.
When creating listings, you must always remember that you represent yourself. Your tone needs to sound friendly yet authoritative enough to convince anyone who reads your ad that they need to contact you. Try to avoid sounding desperate or overly concerned about getting rid of unwanted items. Instead, emphasize your passion for helping others and showing off your personal collection.
If possible, add images of your products and display them alongside relevant reviews. People love seeing pictures of things they plan to buy, especially if they're unfamiliar with the subject matter. As mentioned earlier, taking photos allows you to reference your items later on. Also, adding multiple photos lets your listing stand out against competitors' pages.
Keep in mind that you shouldn't expect to generate thousands of visitors immediately. Even though Pinterest has hundreds of millions of users worldwide, only 1 percent of pins lead to purchases. Therefore, it's crucial to optimize your page layout and design elements wisely. One thing to note: Don't be afraid to test out different landing pages until you land upon the perfect one.
Most entrepreneurs tend to gravitate toward familiar subjects. As a result, they end up focusing their efforts on crafting ads around the things they themselves enjoy. Unfortunately, this isn't usually the case. Most people prefer novelty.
For example, if you really enjoyed playing basketball and wanted to share your skills with the world, you probably wouldn't advertise your service as a coach. You'd rather highlight your ability to dunk. Likewise, if you hate cats, you won't likely put up signs advertising your cat sitting service. You'd rather talk about how great it feels to pet a kitty.
In order to attract the attention of your ideal client base, you need to discover what they want to buy. This means understanding what motivates people to click on your link. Keep tabs on popular topics, trending hashtags, and keywords associated with your products. Pay particular attention to what people say about your niche within ecommerce forums and communities.
What do you say about your company? Is it positive or negative? Do people seem excited about your line of work? Are they eager to read more about it? Or do they simply feel indifferent? Knowing what appeals to your audience will increase your chances of making successful connections.
The final question you need to answer is, "Who am I trying to reach?" Before you start posting ads, take a moment to ponder who you hope to connect with through your website. Think about what matters to you personally. Would you like to earn extra income? Does this opportunity align with your life goals? Can you imagine having fun every day while earning additional cash flow? Only once you've answered these questions can you move forward with confidence.
Just follow our battle-tested guidelines and rake in the profits.