The price of a product determines what customer segment would make demands for them and determines its classification as a luxury good or one for the middle class.
There are many factors used in determining the price of a product or service and they can determine your market share.
1. The Price of Your Competition
Your competition comprises of those who have been in the market and established a name, a growing brand, and network, they could be a startup like you and already have a differentiating factor to make customers have a rethink should they consider switching to a different product.
You should consider your price range falling into what is affordable for both the existing and new products, therefore making room for flexibility to accommodate the needed change when it arises.
This shouldn’t mean to copy what the competition is doing, but to watch the changes made by them can give a signal of not just holding the market share but to also establish new connections.
2. Your Suppliers or Service Providers
The supply chain is a key factor in the delivery of superb product or service. Some organizations have created synergy with suppliers that make raw materials available all year round and at a stable price, and this helps with consistency, however, this would not always be the case as the price could change, transportation cost could increase or loss due to theft.
A selection of suppliers with quality service, integrity and proximity to raw materials are best bet that can make the product or service deliver a reasonable price.
3. Packaging of Your Product
Most products are branded with materials that make the exterior attractive to the customer and take a percentage of what the selling price would be.
The acceptance of the “going green” form of packaging that considers reduction in the use of polyethylene is gaining recognition, if affordability for your company is fair, and then adopting a material that doesn’t pose environmental hazards, cheap and easily disposable would make a good price for your product.
4. Energy needs
Most businesses depend on the power grid for their energy needs and this is a recurring expense that needs to be put in the budget to avoid interruptions in power supply which would affect the day to day operations of your business.
To compliment your primary source of energy, it is of valuable consideration to put in place alternative sources of energy. In determining the overall cost used in producing your goods, power supply is pivotal.
5. Cost of Goods
The cost incurred in making a product is referred to as “cost of goods”, which involves the expense in procuring raw materials, the wage of the labour force, processing, packaging and energy needs.
This cost excludes transportation and distribution. Profit on any product or service can only be determined with accuracy when the COGS (Cost of Goods Sold) is known and leading to the possibility of making a sales forecast to know how many units of goods were produced and if all were sold, how much would be recorded as revenue.
Emmanuel Otori has over 9 years of experience working with 100 start-ups and SMEs across Nigeria. He has worked on the Growth and Employment (GEM) Project of the World Bank, GiZ, Consulted for businesses at the Abuja Enterprise Agency, Novustack, Splitspot and NITDA.
He is the Chief Executive Officer at Abuja Data School.