There are many different ways of coming up with a sale price, however I prefer to assess a product using the following steps below.
The way to determine a good target sale price will depend on a number of factors:
Very important in choosing a sale price because simply, if your product is novel (meaning no one else has done it before) then you can pretty much make up any sale price you want. The idea behind this is that if people really want your product they are forced to pay the price. But remember people are not all that stupid, if you are charging a silly sale price for a simple application fix then no one will buy it. I suggest you continue reading the other options below and come up with a good medium.
A little market research should come into play here. The internet is a great tool but i have generally found Facebook is a good help.
In Facebook you can create ads based on peoples interests. You can create a dummy add and type in the area you product covers, if its a tennis racket, type in tennis. You also have the ability to search by country. Remember this is only a rough estimate but its a good start based on 900 million users worldwide. I talk more about Facebook in the Marketing chapter.
Very important to not make any decisions regarding costs until you see what you can actually buy the parts for. The common mistake is to underestimate a part cost based on little knowledge of manufacturing methods.
The all time favorite item that is mostly forgotten about until its too late. Packaging in some cases can cost more that the actual product so be sure to work closely with your manufacturer to select a good alternative if the initial cost is too much. With so much variations in packaging methods your are sure to find a cheap alternative if your first option was too expensive.
Shipping is the term used to get the product from your manufacturer delivered to your premises. If this is done from China to say America then you need to do some calculations. Find out how much the freight costs and divide that by the number of parts you can ship at once. This will give you a cost per part to ship.
Ahhhh, the hidden costs that you don’t understand
There are free ways to advertise your product such as social media but it is recommended to budget paying for premium website ads on google, twitter or Facebook.
Your other alternative is to employ a marketing company to take on the marketing side of things. Phone round for some quotes but tread lightly as this can be very expensive.
Well you have the option to set up a website and try and sell the product yourself but generally the most money is earned by selling to retailers. Think about all the hard work you would need to do regarding posting product, individual invoices etc.
$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 in from you manufacture shipped to your property and ready for sales.
Ok so how much profit do you want to make. This is a percentage figure and should really range from anything from 25% to 100% sometimes more depending on the factors above.
For this example say you decided on 100%
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 wants to make 100% profit. This means the RRP (recommended retail price) of the part in the stores will be $3.00
Most of the time the answer is yes.
This is where you need to go back to the list above and decide is the part really novel enough and do you have a big enough target audience to reduce your cost.
Think about how much you would buy the product for or possible even ask friends and family for their advice.
I have dealt with people who decided to charge way too much for their product (400%) and only sold a few units a year. If the cost was reduced to make it more affordable to the public them you would get more sales.
There will be a ongoing cost for patent, design and management of the product and don’t forget constant advertising and marketing costs.