Pricing Your Product or Service

A key to building a profitable company is knowing how to price your product/service correctly. Pricing impacts everything, market positioning, profits, cash flow, and of course, taxes. If you price the products correctly, you’ll notice an immediate shift in your bottom line. But if you price your product/service incorrectly, you’ll always end up in that “hustle” mentality, selling any and everything to everyone, which will eventually run you TIRED! Most entrepreneurs think pricing means looking at your competitors and finding a sweet spot. Nope, that’s not all. Pricing typically includes goal planning, defining your target clients, tracking your competitors through market research, factoring in discounts, and having an understanding between the quality and price relationship. 


Once you’ve established your income goals, here’s how to get started with pricing your product/service:


1. Brand Presence 

Establish your brand presence in the market.  Are you a low-cost brand or a luxury brand?. If you are priced too low, people may associate “cheap” with your product/service. If you’re priced too high, potential customers may not be able to afford your product/service. If your brand has higher pricing than your competitors, you want to show immediate value and quality to compensate for your pricing.  Luxury brands differ from low-cost brands because people pay according to the perceived value of the product, whatever the price may be. 


2. Research Your Competitors

When you are pricing in a saturated market, you need to stand out. What makes your brand special and different? Audria Richmond is a very successful Brand Strategist who teaches businesses how to be “Uncloned ™ ” or different from the norms. Before you copy and paste the prices of your competitors, research them. How often do they launch products? What is the value of each transaction? What is the life of their customer? Are their customers purchasing frequently or only once? This customer behavior data is necessary because you’ll have enough data to test your pricing tiers. 


3. Understand Your Variable and Fixed Costs

Understanding your variables and fixed costs helps calculate profit margins. Variables costs are operating costs that vary from month to month. Here is a list of variable expenses you want to consider:

  • Raw materials
  • Labor
  • Commission payouts
  • Payment processing fees (PayPal, Stripe, Square, etc.)
  • Shipping costs
  • Postage
  • Utilities

Fixed costs are the consistent overhead costs you incur despite the number of products you sell. These costs are critical and necessary to run your business. Here’s a quick list of fixed costs:

  • Rent
  • Insurance
  • Salaries
  • Taxes
  • Some materials or subscriptions


4. Determine Your Profit Tiers

Your profit shares are listed in your operating agreement. Once you know that number, you can create at least three different gross profit margin tiers. Do you want to be 70% profitable? 50% 30%? Your sales system or accounting tool should capture this data to report how much you’re profiting from each product/service. 

5. Bonus: Discounts

Do not trick yourself into thinking huge discounts frequently will attract new and consistent business. NO! If your product/service is not priced correctly, discounts can and will hurt your business and ultimately affect your profit margins. Do you want to be known for always having Dollar Tree prices, or do you want your target audience to think of you as Target or Nordstrom? There are circumstances when discounts are great for your business, like the holiday season, Black Friday, or anniversary dates. Again, build deals into your pricing on the front end to ensure you’ll increase both sales and profits. ​


Ready to Take Our Smart Pricing and Budgeting Course?

Our profitability training course helps you properly price your products and services using cost-effective tools and training. Enroll today and get started with pricing!


Remember, every dollar counts. 
CFO for Women
We help women-owned enterprises improve their decision-making and boost their bottom line.

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