When a potential customer is deciding if they should buy a product, there are a number of factors that guide that decision. The customer may consider such factors such as the brand name and its reputation or if you offer free returns or your shipping costs – if the item is ordered online. One factor that is always going to be a driver of purchasing behavior is the price of your product. A price that is too low will cut into your profits and could send a message to the consumer that the quality is lacking. A price that is too high can scare potential customers away and you will lose out on purchases.

So how does one find that perfect price point? Well, one of the first things a company will do when introducing a new product to market is conduct market research. Products are typically divided into three price points: high, medium and low. The higher-end products have higher prices and appeal to consumers who are willing and able to spend more money, while lower-end products cost less but have a larger overall market. You should have a solid idea of where your product fits in the current market and which products represent its biggest competition.

After determining where your product fits in the market, you will have to determine the actual product cost. This includes not only the raw material for the product itself but the labor and other overhead costs, including handling and shipping fees. Once you have determined your cost, you can determine what your wholesale and retail prices will be. Your wholesale price will be lower than your retail price, to provide a profit margin for retailers who sell your product.

Assuming that the suggested retail prices provide enough of a profit margin for retailers, it is likely that retailers will use that price going forward. If you sell directly to consumers, you will also want to determine what your profit margin is for those sales. For more information about the factors to consider when pricing your product, check out the accompanying resource.