How to Easily Price Your Products
Pricing your products and services can be nerve racking if you’re just starting out. But putting your mind at ease is what I plan to do in the video above Click above to watch here or read the notes below for a quick read.
Hey, everybody. Welcome back to the Channel. Today we're going to be talking about how to price your products and services. So if you are struggling to price your products or maybe you'rea just have new business owner who don't know what your pricing should be, then you definitely want to stay to the end of this video. If you're new here, then you definitely want to subscribe and turn on that notification bell because I'm going to be uploading way more content on how you can level up your business in 2022. So I get this question a lot, especially from new business owners, because it can be kind of confusing with all the ebooks and articles and all that kind of stuff out there. So I'm going to make it real simple for you. This is the formula that I use in my business and that I recommend to you and all my clients.
Hi guys, So I switched to my iPad so I can show you guys how to calculate everything. I created this quick guide for you guys to download and follow along if you want to. So it's in the description box. You can click it now and just pause the video. Or you can wait until the end and follow along on your own time. So on the first page, it gives you your formula, which is cost plus competitive. Markup plus value based markup equals your regular price. Now, a lot of people will simply just calculate the wholesale cost for their item. So say they got it from their vendor for $12. And then they'll say, oh, I see that she's happy hair selling it for $60. So I'm just going to sell it at $50 per se or $61. And I'll just keep all the profits. Now, this is usually the most inaccurate way to price your products because you're actually not calculating what it costs you to produce that product or bring it to the customers. So what about the packaging? What about the hang Tags? What about the nets for the hair? What about the clear packaging for safety?
What about your nice packaging that you want to do something nice? What about the thank you cards? What about washing the product before it gets to the customer? Those things have to be taken into consideration and they're different for every brand. So you really want to sit down and think about everything it costs you to bring that product to your customer. So in this example, you can see that we just put a few things for this body contrast by misguided. And so they would get this dress for $3 per item. Then it has some sanitation wrapping, which is $0.68. Shipping handling from their supplier is two point $0.75 per item. And then packaging is 150 and advertising is about three point $0.20. So that gives them a total cost of $11.13 for their cost. Now, like I said, this will be different for every person and if you have a service based business, then this is even more so something that you need to figure out because you want to account for your labor. You want to account for your supplies like your Internet and the software that you use if you use any software and things like that.
So calculate everything it costs you to provide a service to that person. And then you'll have your initial cost. Next, you'll calculate your competitive markup. And essentially what we're trying to do here is to find an estimated average profit margin from your competitors. So there's going to be people that are most likely doing what you're already doing, especially if you have a boutique or hair salon or hair extensions or lashes or something like that. They're already pricing and things that consumers are used to and are already paying. So you kind of want to find someone that is close to your niche or your branding, et cetera, who is already promoting and selling their products to basically make an educated guess on a reasonable profit margin for the market. So in this example, we have a couple of competitors here. And to do this, you're just going to use the formula competitor price minus your total cost, which you calculated in the first step, divided by the competitor price, which will give you the profit margin for each one. So we calculated it for all of these stores here. And then what you're going to do is basically take the average.
So you're going to add up all these figures that you got on the end and divide it by the number of competitors that you pulled data from. So in this case, it's four. So we added all the decimals up and then divided it. And that's what gave us this point, $52. So now that you have the average, you want to multiply that by the cost to give your competitive markup. Okay, so we're going to times 1113 by point 52, which gives us five point $78. Now, once you've gotten your competitive markup, you're going to add that to your costs, and this will give you your base price. So in this example, it's $16.91. So you can really sell it for 16, point 91. But in the next step, we're going to cover value based markup. Value based pricing is really based on perceived value. So this is what your customer thinks it's worth. And really, there's a couple of questions that you can ask yourself to kind of understand what perceived value your customers will have for your product. Essentially, you want to make an educated guess or fill this out. There's really no way to kind of calculate a value based pricing.
There are some videos and some things, but basically it's just an extra cost based on how much your customers will really pay. And really, sometimes the sky is the limit on this. As you can see in our example here, we don't know how much time and materials it took to create the painting. But just on average, it doesn't cost that much. Let's just say $$500 to $1,000 to create it. And it really sold for 110,000,000. And this is an art piece. So art, our fine art or expression is really sold based on its perceived value and what people think or what people feel about this product. The same thing for our other example, which is Yobari melons. And these are Japanese melons that are literally perfected in the agricultural space and they can sell for $13,000 per melon. So it's really about how much the customer is willing to pay. Now, this is not an excuse for you guys to just completely price gouge. But you want to consider things like your expedited shipping quality, just being a prestigious brand like Louis Vuitton or Chanel and things like that, like brand names, convenience, increased benefits, return on investment, meaning that if the customer buys this, they know that they will get a better return and long term savings.
Like, I'm going to buy this Ralph Lauren shirt versus this Hayne shirt because the Ralph Lauren shirt is going to last longer. So those things are what you're going to base your value based markups on. Okay, so there's no rules or equations for this, but you want to be reasonable and realistic for your market and the business that you're in. And just a reminder, this is all based on the customers perception. So it really has to be validated in the market. So you can do test sales and pre orders and even focus groups to validate how much a customer will actually pay for something that you are about to put out. So in this example, we have our base price, our value based markup at eight point $33, which gives us a regular price of $25.24. So when you add all three, you get a combined, you really get a well rounded pricing structure that will allow you to do great promotions or to position yourself in the market and not lose out. Now, it's not an end all be all. And these things can always be tweaked. And once you have validated data based on purchases and feedback from your customers, you can tweak this in your business as things go on.
So don't think that this is just set in stone. If a customer will pay, let's say, you know, it's selling really well at $22 versus $24, then go ahead and price that at 22 because you know that when those customers come, they're going to come and drove you get what I'm saying. So watch your data. After you create your pricing and things fluctuate over time, try this out.
I left a template in the description box for you. It's completely free so you don't have to worry about paying for anything. And don't forget to subscribe and turn on that notification Bell so you can get notified when I upload a new video. Just like this one. And that's it. I'll see you guys in the next video.