Whether you have a product or a service to sell, it all comes to the same question: what should you be charging for your product or service? How to determine optimal price of your product or service for profit?
This is a challenge that we find not just small businesses but also bigger ones face, especially when it comes to launching a new product or service.
So, how could you be sure to be pricing your offer in a way that’s in line with the market and that’s good for quick business growth?
In this article, we are going to share with you how to determine the optimal price for your product or service for higher profit.
Hi there, and welcome back to Serendipity Marketing. We're a digital marketing agency with a mission to help small businesses grow by applying psychology to their marketing strategies.
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So, let’s go straight to the point.
1. Study your competition
The first thing about how to determine optimal price of your product or service that you need to do is to look at your competition. Is your product comparable to theirs? Is it better? Is it worse? Do you have the same feature sets? Do you have fewer features?
If your product is easier to use, it has all the same features, it's higher quality, and you can price your product at the same price as your competition or higher.
Now, if your product has fewer features than the competition or your service has fewer features, it's not as good, you don't want to be at the same price point. Ideally, you want to be lower.
And so far, it's just common sense, isn’t it?
If people come to your website and are amazed by your product as it is way better than your competition's, of course, there are going to be willing to pay the same amount as the competitor's product because yours is better.
And probably, they would even pay more money.
But if your product isn’t as good, they're not going to want to pay more or even the same price as your competition.
They're going to be thinking why they should pay £20 for that product when they can get the competitor's one for £15 and it's five times better.
That's a thought process that goes through people's heads.
Typically, what we like doing is to make sure we match the same amount of features. or the same type of product or the usability and the quality and we'll price our product roughly the same price as our competition or a bit less.
And this is because if you have a better solution or as good of a solution and it's a bit less, it's much easier to win over the business.
2. Split test your pricing
Now, the second tip we have for you about how to determine optimal price is that if you want to maximize how much income you're making and profit versus capturing the majority of the market because the first tip we gave you, if you want to put your price lower than the competition when your product's better, it's a great way to gobble up their market share, but, on the flip side, if you're trying to optimize for profitability, what you want to do is split test your pricing.
Pick an A/B testing tool. Create two pages of your product or service with different price points and keep playing with the price.
You can increase it, you can decrease it.
Alright, now before we move on with how to determine optimal price for profit, have you ever thought about how much you should invest in marketing to generate constant business growth? Click the button below to calculate the ideal marketing budget you should allocate for higher visibility, engagement, and profit.
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Usually, you want to start off by increasing it and you want to see if you can generate the same amount of sales with a higher price point.
If you can then you want to go with the higher price point.
Then, you don't want to stop there just because you got more sales on the front end. Double-check to make sure you're not getting a ton more refunds or chargebacks because, if you're getting a ton more chargebacks and refunds, your total net number isn't the same.
Now, typically, what you'll notice when you increase the pricing is that you'll get a bit fewer sales but in total, you'll generate more revenue and more profit.
So don't just look for how many total conversions you're getting.
Look for the total amount of each variation presented.
For example, let's say you have one product and you're doing the split test and if you had one variation that's selling for a pound and you had 100 conversions, that's £100 total in revenue. If you had another variation, that would cost £100 for the same product but you had 10 sales, it's going to show that that new page converted 10 times lower but you just ended up making £1000.
1000 versus 100. Huge difference.
In that case, you probably want to go with the version that just made you £1000 over £100 even though you got 10 times less sales.
So, when you're A/B testing, it'll help you optimise for revenue and not just the true conversion number because all that matters at the end of the day when you're doing price testing is what makes you the most revenue profitability.
If you need help with how to determine optimal price for profit or with your digital marketing to grow your business in terms of visibility, engagement, and profit, contact us today and speak with one of our digital marketing experts to see how we can build the bridge between the point you’re standing at right now and your goals.
