When I first started LDL, my lipgloss brand, I made ‘research’ on the popular lipgloss brands and used mean-median-mode to get my own price. My mom nearly yelled my head off when she found out. I had sold about 8 glosses at that point and made zero profit. As a matter of fact, It seemed like I was losing money. I WAS losing money.

She sat me down and taught me some things on how to set prices and now I am going to impart that knowledge into you.(I sound like a pastor.) 

Let’s get into it.

How NOT to set your prices.

Do not make the same mistake I did, don’t set your prices based on your competitors. Setting prices solely on what your competitors are using can lead your business down a very risky road. 

Imagine you’re going to Ojuelegba and you enter a bus and see another person and decide that they look respectable and you just follow them without even asking where they’re going. You could end up at Lekki, for all you know.

That’s what blindly following your competitor pricing can do. Each business has their own operating expenses and copying prices without understanding all these can lead to loss or missing out on some serious profit.

Also, customers are not a one size fit all. Your target market might not be the target market for the competitor you’re copying. Imagine copying the pricing for a makeup brand that targets business class women and using it for your own makeup brand that targets mainly students. 

Do you see where I’m going? Each and every business has a unique audience, your target audience with varied preferences and wants.

In essence, don’t follow your competitor to Lekki when you’re going to Ojuelegba.

HOW TO PRICE YOUR GOODS

Now, let’s get into the real reason why you’re here, how to price your goods profitably.

1). Assess your Costs.

Sit down, light your candle, play some asimiri and write down every single money you’ve spent when it comes to the making of that product.

Transport? Price of materials? Price of packaging? Price of tools? Price of the biscuit you bought on the way to pick up your materials?

Write everything down. Identify all the money you’ve spent. Then consider what it takes to make your product or deliver your service.

How long did it take you to do it? How much effort? What amount of money would you place to the time and the effort?

Write these down too. This process helps you figure out the entire costs of running your business. It’s knowing how much it takes to make a plate of rice including not just the rice and tomatoes but the gas inside the cylinder, the price of the plastic pack.

This knowledge is very important and it ensures you set a profitable price.

2. What’s your profit percentage?

Now this is where the ‘profitable’ part of profitable price comes in. If you set your price based on just your costs, you would make Zero profit. 

One way to calculate your profit is to think of the amount of money above the Cost of Output that you want to make per sale. For example, you’ve calculated all the costs for making 25 bottles of lemonade to be 24000 naira, after fighting with the calculator, you’ve defend that cost per bottle is 700 naira. How much profit do you want to make on that 700 naira?

Another way to do it is to add all of the money coming in and substract all your expenses i.e cost of output. This is known as the profit margin. Using the same analogy, this time you’re probably already selling lemonade and after selling the 25 bottles, you’ve made 30,000 naira. So you substract the money you’ve made from the cost of output. That’s your profit.

If you’re following the first option, keep it ethical, please.

3). Understand your Clients.

I cannot hammer enough on how important this is. Understanding your customers is KEY. It’s like knowing your friend’s favorite things. Figure out who they are, what they like and how much money they’re willing to drop. Identify your target audience; their age, preferences and needs.

This knowledge helps tailor your product or service to suit their tastes, so they’re happy and more likely to buy. Understanding your customers ensures that your business offers what they want, which in turn brings loyalty and success.

4). Picking your price strategy

Choosing a pricing strategy depends on different things. There are various ways approaches, each serving specific purposes.

a. One approach is the COST PLUS strategy. In this approach, you calculate your costs and add your desired profit margin. 

Imagine you’re selling lipgloss and after calculating your entire expenses, you discover that your production cost per gloss is 1500 naira. You want to make 500 Nara profit per gloss so production cost + profit margin = product price.

This is cost plus pricing.

b. Another approach is VALUE BASED PRICING. This is when you set your prices based on the perceived value of your product or service. 

It’s like setting a higher price for a fast internet connection because it’s a better option than the nonsense Airtel is giving us nowadays. It has more value than a normal internet service.

c. There is also Competitive Pricing. Now I know I said earlier that you shouldn’t base your prices on your competitors but I meant without research. Competitive Pricing involves researching and analyzing what similar businesses charge and positioning your prices accordingly. It helps you stay in the same range as other businesses in your industry.

Picking the right marketing strategy depends on your business goals and market conditions. When you understand your business needs, your target market and the competitive landscape, you can choose a pricing strategy that maximizes your profit and aligns with your business objectives.

5). Monitor your sales and profit and tweak accordingly

Monitoring your sales and profits is like sailing a ship. The moods of the sea are ever changing and you might need to change direction or gear at any time. 

Observe your sales and your profits, are your profits increasing? Are they falling? What is selling the fastest? Why?

Tweak your price based on these insights. Stay vigilant and adjust your course when it needs to be adjusted.

     Setting prices for your business is not a one size fits all task. It needs careful research, understanding your costs, knowing your customers and choosing a pricing strategy that aligns with your business objectives.

Please remember, don’t follow someone to Lekki when you’re going to Ojuelegba.