What should I consider when pricing my product?
I know that I need to at least make back what it costs to make, but how do I know how big of a markup I should take? Will it be different if I sell my books on my website vs in a store like Amazon or Barnes n Noble?
My business is a service business: So, I look at competition first, do a thorough review in my space and region; then I look at my costs, base costs plus any subcontractor or materials. Then I estimate margins based on all my expenses (healthcare, office supplies, travel etc); I also use salary wizards to have insights on an FTE with my experience and depth of knowledge to know what they make annually.
Products: I wrote and sold books a few years back. Any other platform (ebay, amazon etc) all have percentages, so make an adjustment. You have shipping and handling costs, strongly recommend you combine into a flat rate. Managing by location (zip) is a nightmare. Pick an average and use that as your shipping and handling. Go to UPS or post office and find out what weight, materials, labor cost and postage from the nearest city to the furthest away, and pick and average.
Interviewing publishers help you in understanding the business. Books aren't moving like they used to, so be careful.
What people will pay for it. That's the only thing that counts. If you can't produce it for less than that and make your target profit, then you're in a losing proposition
Also, if you are trying to sell on Amazon or any other market place, you need to take into considerations the fees associated with the price. Cost of Goods (COGS) should reflect a margin at least 45-65% above the cost so that there is wiggle room for promotional activities.
Pricing is as simple as what can you charge to make money? While you can look at competition to help set an idea - it's not cut and dry, charge what they charge. Your competition may sell at a different price because of recognition, or because of volume. You didn't specify your product, and there may be mroe considerations, but Amazon for example can sell at a slightly different price than other sites/stores, because of the volume of shoppers, and their purchasing power. They're able to make smaller margins on some goods, because they'll make it up selling different items elsewhere. Also, Amazon and Barnes and Noble may give you a false sense of competition and pricing because of this. Different books, will have different value to some buyers than others - and the more demand the higher that can be charged, as long as the buyers see value in that cost. You could charge less - - - but you'd have to know that you're trading that lower amount per item, for selling more items - otherwise in the end, you're just making less money. You could charge more, but then you're going to sell fewer of each - if you're way out of the 'value' spectrum. It really comes down to what is your value to customers, and can you meet somewhere in the middle?
Depends on your positioning strategy, if your books and/or the services you give to the client is unique you can think in sell them in a high position if clients are willing to pay for it (let's say Apple strategy).
If your strategy is to enter into the market beating Amazon or BN you should compete also in prices (difficult task) then ensure that you cover all your fix , variable costs and a sufficient profit to not to kill your business by cash-flow disruption or whethever. You can also offer a very competitive price for the books if it is compesated with other business line (if you offer them).
Be careful to not cannibalize your product selling them with a very low price.
Always remember that at the time of a start up, never focus too much on markup. Just keep it to a level where you can sustain yourself without hitting your pocket for your marketing, promotional and sales activities.
Secondly selling on Amazon or B&N would be better than just selling it on your own website as the audience would be larger there. In any case promotional activities in any case would be important at this juncture.,
When anyone starts a new business, it's only natural to look at the competition and plan a pricing strategy based upon this. But this has drawbacks. You're into a commoditised market place and therefore competing on price. Set yourself up as a specialist and you're into a different marketplace. So before you consider pricing your product, consider your pricing strategy. Then the next part of your question opens up a whole new world of possibility...
I have three books published. In this day, Kindle is the way to go. 95% (if not more) of my sales are Kindle related. Price it high enough to cover your cost and make some money and then utilize Amazon's "promotions". When I run a promotion, I tend to sell a lot of books! Do note, I write and sell books for charity, not as my primary means of income. Those truly in the field, might have other advice.
Here are links to my books if you want to check them out:
Hi Caitlin. The factors that are essential to pricing for us here at From Mother's Garden are:
What does it cost me to produce, package, and market this item?
What do others charge and what are people willing to pay for what I'm selling?
Would I be willing to pay this amount for my items? Are they worth this amount?
If I wouldn't be willing to pay the price I'm charging, I won't charge that price. If my costs to make the product are not covered by the price I'm selling the item for, I charge more. I am not so concerned with making a lot of money per sale as I am about making the sale at this point.
When you are new or relatively new, creating a following and return/repeat customers is the ultimate goal. Have you completed a cost-savings analysis? Completing mine helped me see that I needed to charge people more for my products and I made price adjustments based on what I saw in the analysis. The SBA has helpful tools on their site.
I hope that helped. :)
There's more strategy involved, particularly if you are on trying to develop a new market or are trying to create your "brand."
If you are talking about an eBook, you have to know the rules on who give you the best exposure and what their rules are. For example, if you go with KDP (Amazon) they'll give you some nice tools to promote but you have to be exclusive with them for a certain amount of time.
I recommend pricing from the top down, instead of the bottom up. The old-fashioned bottoms-up method uses the cost of goods as the starting point, add expenses and overhead and then profit.
Instead use the top down, get the maximum price possible, based on your offerings and your industry, then subtract costs and you end up with a profit margin.
Do not be afraid to charge appropriately. You can also have sales and give discounts to lower buying resistance - but you will have established the "value" of your product by publishing the higher list price.
Everyone likes to think they are getting a "good deal".
Some of these things should be kept in mind before determining the price of any new product. Whenever a company launches a new product in the market, firstly the basic manufacturing cost of that product is seen by that company. After that, the company does a market research analysis of the cost of other company's products, similar to that product. After this process, the company determines the price of its product, keeping in mind the customer review, so that the product can be easily bought by the people and the company can get some benefit.
At the stage of pricing, you should consider all types of costs. Most of the people could not do this. When a person sale any product, s/he calculate the only product cost and manpower cost. But there are many other costs like administrative costs, delivery costs, commission for e-commerce marketplace, packing material costs, etc. So, when you start pricing, you should consider all types of costs.
When you sale on amazon or other marketplaces, you should consider their commission, their warehouse charges, your delivery costs to their warehouse, etc.
I would start with making a small market study (research) of competitor products that should give you an idea of the average people are making with similar items.
Then you can decide based on your expenses, your positioning strategy and your unique selling points your price and profit margins.
I would use various distribution channels to sell, e.g. ( website, amazon/B&N, etc). I think your price should be the same however you can do some targeted promotions on your website.
Michael N Francis
For my point of view, your price is one of the best marketing message you send to a potential client. For example: If you sell a book in 150€, you're telling to the market: Hey, men and women with few incomes...you will never be able to buy my books, I'm not directing to u. U'r not my target client. What kind of clients are you directing to?
And about markup...it depends on your strategy. Is there scale economy? Is the same effort for u selling one book than selling two books? What costs do you really want to cover? What for?
A manufactured product usually has a rule of double then redouble costs for retail. Most makers underestimate costs, however.
Books are another animal altogether. Often authors give away electronic copies, worse pay for vanity printings that don't sell. An estimated 135 million titles are in print, more than whole nations might read in a lifetime. There are that many more titles waiting in the wings for a break. So books have no intrinsic value unless they somehow become popular first. As an author, you are selling the rights to your writing only, probably to a publisher. Being a publisher is an intense form of risky entrepreneurship, where you hope 1 in 10 printings you went on a limb backing becomes a hit. Self published authors have a lot of superior competitors to beat, and that takes guerrilla tactics, possibly a bookshelf of titles, too.
As previously mentioned, you can't focus on profits when you're struggling to get noticed. I'm aware of many authors, but not you.
It seems you are selling books, but what kind of books? Are they extremely rare first prints? Did you write them yourself? Are they aimed at a niche market? What kind of market? One with money or not? Are they exclusive books? Is the quality of the print high and with lots of photo's? What do comparible books sell for? How high do you think the demand for your books will be?
It's very much about what you think people or companies will be willing to pay for them rather than a percentage or fixed number. If you will be selling low volume, there's little point in having a low markup, but you can afford to if you will be selling large volumes. Selling on your own website will increase the cost price of your product as you have increased development costs.
As you mention one must cover first of all the cost of production and marketing.
Consideration should be given to competitive pricing i.e. what the market can bear.Strategic pricing is key to product launch success as well as sustaining successful business. If you are a start-up business you may want to look at penetration pricing as opposed to differentiation pricing as an established business
Hi Caitlin, This is a specialized are, in terms of understanding how the business works. Plus the marketing, however there are some common threads.
IN all the comments I have read, excluding the links or blogs that contributors have mentioned. One of the biggest aspects of costing that is so often not discussed, and there for may be over looked until it BITES YOU is TAX. Within your pricing model you do have to make allowance for the tax which you will have to pay at least once a year.
Something else to consider, and this will depend of the type of book,
You could consider selling both hard and soft "E" versions. at different pricing.
To promote your book you could also Give for Free a teaser like say 2 - 4 chapters, up to the point of interest or suspense.
That way they will get a feel for your style. If they like it they will follow you.
Set up an online "Book Club" where people can discuss the book with you.
You can them become more connected and approachable.
Set up a web subscription For free membership. That way you can communicate with your followers, And let them know what plot of book you are currently working on. Later you can offer the finished project at a reduced members/ subscribers price.
Maybe some of this can be used at the start to build up a following.
If you only have to be exclusive for 1 year, maybe Amazon or the like is a good way to test the water.
With anything that you are offering to sale, you need to see what your targeted audience is willing to pay and the value they may find in it. Do you have a sample targeted audience that you can have read your book (for free) and get some feedback from? If they really like it, then they could even give you permission to share that feedback in writing. Some published authors will even give a book away for free (for a limited period of time) for marketing purposes. Once people have become aware of you, your book and it's value, then you offer it "for sale!"
Another thing to do is to see how much other books, similar to yours, is selling for on Amazon and through B&N. As a new book, then offer it for a $ less than the others, if possible.