While there are many methods of deciding on a sale price, I suggest assessing the product using the steps below.
A good target sale price depends on a number of factors:
Choosing a sale price is vital. If your product is novel, which means that no one else has produced it before, then you can essentially set your own price. The idea behind this is that if people truly want or need your product, they will pay the price. Remember, however, that people are not that naïve and, if you are charging an outrageous price for a simple application fix, the likelihood people will buy decreases.
To determine your target audience, analyze the market. While the internet is a great overall tool, I have found great success with social media, Facebook, in particular.
Facebook allows you to create ads based on audience interest. You can create a dummy ad and type in the area that your product covers. For example, if your product is a tennis racket, you would use the word “tennis.” You also have the ability to search by country or region. Remember, this is a rough estimate but it is a great start as it is based on 900 million worldwide users. More on Facebook and marketing is featured in the next chapter.
It is extremely important to avoid making decisions regarding costs until you can what the price of the parts. The most common mistake is underestimating a part cost based on little to no knowledge of manufacturing processes.
Packing is the all-time favorite part of the process that is typically forgotten. Packaging, in some cases, can cost more than the actual product so it is vital to closely collaborate with your manufacturer to create an alternative if the initial option is too expensive.
Shipping is the means by which the product is moved from your manufacturer to your location. If this move occurs from China to America, calculations are required. How much does the freight cost? Divide this number by the number of parts that you can ship at once. This gives you the cost per part to ship.
Marketing is a hidden cost that is often misunderstood. There are free ways to advertise your product (such as social media), but it is recommended to budget for premium website ads on Google, Facebook and Twitter. Another alternative is to employ a professional marketing firm. Make a few calls to request quotes but, tread lightly, as this can be very expensive.
You have the option to create a website to sell the product yourself. However, generally the most profit is earned by selling to retailers. Thing about all of the hard work required to post the product and invoice customers.
Let’s break this down for you:
$0.50 – Part Cost
$0.20 – Packaging Cost
$0.10 – Shipping Cost
$0.30 – Marketing Cost
$1.00 – Total cost to you
This means that the part costs you $1.00 to buy from the manufacture and have it shipped to your property, ready for sale.
How much profit do you want to make? This is a percentage figure and should range from 25% to 100%, sometimes more depending on the factors above.
For this example say you decided on 100% profit.
This now means that you buy the part for $1.00 and you add your 100%, making the part $2.00, which is the sale price to retailers.
Generally the retailer also wants to make 100% profit. This means that the RRP (recommended retail price) of the part in the stores will be $3.00
Most of the time the answer to this question is yes. Revisit the list above and decide if the part is truly novel enough or if you have a big enough target audience to reduce your cost. Think about what you would spend on the product and perhaps ask friends or family for their input as well. I have encountered individuals who decided to charge far too much for their product (400%) and only sold a few units each year. If the cost was reduced to make it more affordable to the consumers, the product would have yielded higher sales.
More sales = More profit
There will be ongoing costs for patent, design and management of the product. Don’t forget the costs of constant advertising and marketing.