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How do I choose prices?
Mauro D'Andrea has done an excellent job of compiling in one place conventional wisdom on product pricing. Take a look at his Blog Growth website if you are looking for advice on how to do pricing: http://www.blog-growth.com/the-science-of-pricing/.
Other factors to consider:
- What value does the customer see in your product/service? In other words, would they rather have your product/service and part with $X or not have your product/service and keep their $X? See our blog post Many Pricing Strategies Available for some additional ideas.
- What alternative ways exist for the customer to satisfy their need/pain than to buy your product/service? This now relates to both direct competitors as well as substitute products/services. And how much better/worse is each alternative? And how much more/less does each cost? Embedded in this question is the whole issue of how will you differentiate your product/service from all others? See our blog post How Differentiation Can Impact Pricing for more information.
- What does it cost you to provide the product/service? (direct costs). See our blog post Reducing Costs Provides Pricing Opportunities for more information.
- How much volume of the product/service must you sell to cover your fixed costs? (indirect costs)
Now, how can Offtoa help?
- It can help you understand the relationships between direct costs and planned prices. This comes out of the top half of the income statement. You can use this information to determine whether or not your company is viable.
- It can help you understand if the planned sales volumes of your products are sufficient to cover your direct and indirect costs. At a gross level, this comes out of the bottom line of the income statement. At a product level, this comes out of the per unit sold report. You can use this information to determine whether or not your company is viable as well.
After you test market the product, you will learn what prices work in the market. Once you learn this, you can replace the planned prices with actual prices in Offtoa and re-examine the income statement to see if the company is still viable.
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