Welcome to the ‘Davidsons GSBF Diaries’! In this series, we delve into the insights and key learnings from our recent ‘Unlocking the Secrets to Small Business Success’ event, which was a highlight of the 2023 Geelong Small Business Festival. Local business owners gathered to hear from our specialist panel on how to transform their small business and learnt about planning for success, business budgeting, reporting and accounting files, and the value of business valuations.

In this article, we explain how to set sale prices for your products. If you have any questions on business sale prices or any of the other topics shared in the Davidsons GSBF Diaries please don’t hesitate to contact our offices on (03) 5221 6399 or at info@davidsons.com.au.

Pricing your products effectively is an art form, and doing it well is a crucial part of your small business success. It can be tricky the strike the right balance between profitability, competitiveness and customer value. This article aims to simplify the process of setting sale prices for your products, ensuring your business thrives.

The steps to setting product prices

Step 1: Know your costs

Start by calculating the total cost of producing your products. This includes the obvious direct costs like materials and labour, as well as the less obvious overhead expenses like rent and utilities. This comprehensive understanding of your costs is crucial as it sets the groundwork for your pricing strategy.

Step 2: Research the market

Conduct thorough market research to understand what your competitors charge for similar products. Analyse pricing trends and identify the price range that aligns with your target market’s expectations.

Step 3: Define your value proposition

What makes your products stand out? Is it their quality, innovation, or convenience? Understanding your product’s unique value is an essential part of justifying your prices. Use your marketing platforms to showcase these benefits, emphasising the value you offer.

Step 4: Calculate your desired profit margin

Determine the profit margin you aim to achieve for each sale. Your profit margin is the difference between the sale price and the cost of producing the product. A healthy profit margin ensures your business’s sustainability and growth.

Step 5: Factor in variable costs

In addition to the direct costs, consider the variable costs associated with selling your product, including shipping, packaging and transaction fees. These additional expenses can affect your overall profit and should be incorporated into your pricing strategy.

Step 6: Consider pricing strategies

There are several pricing strategies you can adopt, such as cost-plus pricing (adding a markup to your costs), value-based pricing (setting prices based on perceived value) and competitor-based pricing (aligning with competitors’ prices). Choose the strategy that aligns best with your business goals.

Step 7: Account for discounts and promotions

When determining your base sale prices, think about how discounts and promotions will impact your profit margins. It’s essential to ensure these special offers don’t undermine your profitability.

Step 8: Keep an eye on your gross margin

Your gross margin (sale price minus the cost of goods sold) is a key indicator of your product’s profitability. Monitor this margin closely to ensure that your pricing strategy is effective and sustainable.

Step 9: Test and adjust

Don’t be afraid to test different price points and observe customer reactions. You can experiment with slightly higher or lower prices to gauge the impact on sales volume and revenue. Continuously analyse the data and adjust as needed.

Step 10: Review and revise regularly

Pricing is not a one-time decision. Regularly review your pricing strategy to stay in tune with market trends, fluctuations in costs and shifts in customer preferences. Stay flexible and adjust your prices as necessary to remain competitive and profitable.

Setting sale prices for your products as a business owner is a strategic exercise that requires careful consideration of costs, market trends and customer perceptions. By understanding your costs, researching the market, and factoring in your desired profit margins, you can establish a pricing strategy that not only ensures profitability but also appeals to your target audience. Continuously monitoring, testing, and refining your prices based on these principles will lead to pricing success and contribute to the long-term growth of your business.

This article was written in collaboration with Justin McGrath, Kylie McEwan, Troy Nolan, Katelyn Shirley, Michael Rebula, and Daniel Neeson.

Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.