Imagine that you have created a product that you are very proud of and want to sell. You may already have your first salesperson asking you: how much is it worth? And you go blank ... How to calculate the sale price?
Because, if you ask for little, you lose; And if it is too much, the potential client may consider that you have asked a lot and then not want to get the product. If you are also wondering, or think that something like this happens in your eCommerce and it is the reason why you do not sell, then we are going to give you some tips on how to calculate the sale price of products (and services).
How to know how much your product is worth
Let's face it, pricing a product is not as simple as giving a figure. There are many factors that determine what the sale price is, and also many methods that help to find that fair amount for both customers and companies and businesses. So everyone wins. But how do you get it?
When calculating the sale price, several factors are taken into account. One of the first is, without a doubt, the cost of that product, that is, what you have to spend to make that product. For example, imagine that what you want to sell is a paper book. If you have been to a printing press, they will have told you that x books cost x euros, which, dividing by the number of books, will give you a figure. That's what you pay per book, and what, at the very least, you should get back per book. Let's say that this figure is 5 euros.
That means that the sale price of that book is, at least, 5 euros. However, if you sell it like this you will not have any profit. In fact, if you have to send it, the shipping costs would be on your account, so you would lose money.
That is why, to the production cost of the product, other expenses are added with are:
- Packaging and shipping costs.
- Cost of all the hours used to make the product.
- Benefit you want to achieve.
Now, that does not mean that instead of asking for 5 euros we ask for 50. By proxy, you can, but will they buy you? The most possible is that no. That's where the factors that can help you set the best selling price come into play.
What factors to focus on to set the sale price?
To calculate the sale price of a product, there is a formula that can come in handy. It is as follows:
Sale Price = Cost * (100/100-Profitability)
However, you should bear in mind that other factors influence this formula, which are:
- The competition. You need to put a price that more or less does not differentiate you too much from those of your competition but at the same time you offer something to the client to choose you instead of the competitor.
- The psychological price. When you buy something that is 49,95 we know that you are spending 50 euros. But many times the impression is that you have not spent 50 euros, but less, even if it is 5 cents less.
- Product image. Imagine that you want to sell a toy for 50 euros, but it gives the image of being from the Chinese. Would you buy something at that price? The most possible is that no. The image and how users see your product will influence what they are willing to pay.
- Offer and demand. There is no doubt that if customers want the product at all costs, it is not going to matter to pay more. But if they don't want it, you would have to lower the price to be able to sell it.
What methods to use to set the price
There are two methods that are commonly used to calculate the selling price of products. It does not mean that you have to rely on them since you have to take into account more factors, as we have seen.
- Gross profit method. It is the traditional way of knowing how much to sell a product for. What is done is to determine what is the percentage of profit that the product has.
- Contribution margin. In other words, the profit that you want to obtain from the sale of that product. In this way, you make sure that you earn that profit regardless of the expense of the product.
Is a low or high sale price better?
Many are of the opinion to put prices as low as possible, in order to encourage sales and people to buy more. But you may encounter the unpleasant reality: that you do not sell.
Many companies can afford to minimize profit in an attempt to make themselves known or for doing special promotions. The problem is that, sometimes, that price the only thing that causes is that there are more debts because all the expenses are not covered. Or, covering yourself, you find that you don't sell.
This is something very common, especially in eCommerces. Let's take an example:
Imagine that there is a phone that you have fallen in love with. In an eCommerce it costs you 150 euros and in another 400 euros. The "normal" price of this terminal is 350 euros. Now we ask you, which one would you really choose? Would you not have any doubts about buying the 150 euro one because you think it is a scam, or that they will not really send you the phone you want, that it is of poor quality, etc. In those cases, if you can't find it at 350 euros, the most normal thing is that, if you really want it, you spend more to make it for it, instead of less.
And is that sometimes, if you lower the price too much, you can find yourself in this situation. What would have happened if instead of asking 150 euros they asked for 300? Well, since it is closer to the retail price that most have, in the end you would opt for that of 300 because it is a saving and it is not a reduction so great as to make you doubt.
On the sidelines is the reputation of the store, if it has opinions or ratings, etc. (which can also influence the final decision).
In short, what we are trying to explain to you is that, sometimes a low price will make customers mistrust your quality, of the products and of the company itself. While a high one will limit customers a lot (it is as we said, if you find it cheaper, and you really want it, you will pay more for it).
Has it now become clearer to you how to calculate the sale price of a product or service?