There should be a number of considerations that you look at before you set a pricing structure to your products.
But many entrepreneurs don't think much about an overall strategy. They believe they are limited in their ability to set prices beyond a certain range.
Let's say you decide to sell a DVD, for instance, that you produced yourself called "The Ups and Downs of Exploring the Grand Canyon on a Pogo Stick!"
You have no idea what to charge for it, but you decide on a price of $19.95 because that's what a few other travel-related DVDs are going for.
Before you make the mistake of setting a price and then either losing your shirt on it or making no sales because you've priced yourself out of the market, I'd suggest you take a different approach.
Why not begin by first determining how much you plan to profit from this DVD in the coming year? Your thinking might go something like this:
- My goal is to make $50,000 in the next 12 months from sales on the DVD.
- If I sell individual copies for roughly $20 I'm going to need to sell 2,500 to reach my goal. But that's the gross you would stand to receive, not how much you will make.
- What will it cost me to produce, market, and cover returns on the DVD?
- Production costs for 2,500 copies are $6 each, I'll spend $2 per unit to advertise, and returns will hopefully be less than 2%.
- Doing the math, production costs are $15,000, marketing will cost $5,000 and returns will cause me to have to sell an extra 50 to reach my 2,500 goal.
- So I am really looking at the cost of producing 2,550 units (you shouldn't try to sell the returns as "new" merchandise - but you might get a few bucks per copy on eBay selling the returns as "used."). For 2,550 my total output is $15,300 for production, $5,100 in marketing. We'll assume the buyer will cover all his own shipping and handling expense.
- You now know that if you expect to gross $50,000, your outlay is going to be $20,400 or roughly 41%. You'll make a little less than $30,000 profit on the deal.
The question arises whether that makes sense for the work you'll put into producing, packaging, shipping, etc. There will be other costs as well (like the cost of credit card transactions, web site hosting, etc.) Will you add these costs in to the mix or not?
By first doing this type of analysis, you will better understand whether your DVD idea for pricing needs to be adjusted.
I would think that you ought to charge more for your product than just going with the average. This is a special item that you can pack with added value and sell to a very specialized information audience niche.
Also, there really won't be comparables - unless someone else has beaten you to the punch in producing such a DVD.
I believe way too many specialized niche products are under priced.
Think about selling your special DVD for $37.95 or more. You would gross $96,800 (approx.) and come away with a profit of just over $57,000 assuming the sales we targeted.
As with all pricing models, you should test and refine your assumptions to validate your initial pricing decisions.
