Because video audiences are continuing to grow at a rapid pace, there has never been a better time to pursue the business model of creating and selling videos online. The first step to setting up an online video store is to determine exactly what it is you want to sell and then to set the pricing of your content.
The price you charge is one of the most important decisions you make as a business owner. Setting a price that is too high or too low may limit your business growth. At worst, it could cause serious problems for your sales and cash flow. Ask people to pay too much for your product and they will stop buying. If you ask them to pay too little, your customers assume your product is poor quality. An “optimum price” factors in all your costs and maximizes your margins while remaining attractive to customers.
Pricing your product usually involves considering certain key factors: determining your target customer, tracking how much competitors are charging and understanding the relationship between quality and price. The good news is you have a great deal of flexibility in how you set your prices; however, that’s also the bad news.
The price you charge is one of the most important decisions you make as a business owner. Click To Tweet
Here’s how to set it:
Determine the Target Audience
Market research is an essential tool for getting to know your customers. This research is accomplished by either informal surveys of your current customer base or paying a marketing firm to do extensive research of potential customers. Information that is relevant when conducting research includes demographics, purchasing patterns, price sensitivity, etc. Another option in determining the target audience is to consider consumers in a few different categories such as the budget sensitive, convenience-minded and status focused. When you decide the category of your target audience, the price for your video content can be determined.
Calculate the Product Cost
Every business needs to cover its cost in order to make a profit. Working out your costs accurately is an essential part of working out your pricing. Before any pricing decisions can be made, a solid calculation must be established including all costs; direct, variable and fixed.
A direct cost is spent to create the video or develop the business plan. Variable costs, which increase as your sales increase, will also need to be included in ongoing expenses such as extra labor, increased software for sales, etc. Finally, establish what percentage of your fixed costs (overheads such as rent and wages that do not increase with the increase in sales) the product needs to cover. Add all of these costs together and divide by the number of customers to determine a cost per unit sold. Best practice is to generate the cost for each video created for sale in the e-commerce store in order to ensure specific pricing for each.
Knowledge of Competitive Pricing
No small firm should underestimate the value of monitoring their business rivals, according to Suzie Shore of marketing research consultancy Juicy Info. “Tracking others’ performance will give you a critical business edge,” she stresses. “What you can learn depends on the level of detail you go into, but just by looking at your competitors it’s possible to track new trends, corporate positioning and diversity of products or services, right through to customer relationship management and marketing promotions.”
“It’s crucial to understand your sector so you can fine-tune your strategy and stay one step ahead,” advises Shore. “It’s even more important if you’re in a particularly aggressive or fast moving business environment.”
Decide on a Pricing method
Research provides several options in pricing methods. The two basic methods for pricing your videos are cost-plus and value-based pricing. Analyze your business to determine which method would work best for your needs.
Cost-plus pricing takes the product cost that you have calculated and adds an amount needed to make a profit. Based on your industry, the percentage can be anywhere from 10% – 50%. This method works well in high volume markets. For example, if you are able to mass produce videos at a low cost, cost-plus may be a good option. It is essential with this method to calculate a true product cost.
Value-based pricing depends on the strength of the benefits you can prove you offer to customers. If the value of your content is unique or presents a greater benefit to customers, value-based pricing may work for your business. This approach may be more profitable but can also eliminate budget-conscious buyers.
Whichever method is used for your e-commerce business, know the product cost and ensure it is covered by sales.
Re-evaluate the Price
When pricing is established, it will not remain valid forever. It is not fixed for long. Your costs, customers, and competitors will change; therefore, you will need to shift your prices to keep up with the market. Re-evaluate monthly and continue to track results when the change is made to determine if each video is contributing to the goal of generating a profit.
As well as, re-evaluating your price, you also need to constantly evaluate your costs. If you are having a hard time selling your videos at an acceptable profit, it may be that the cost is too high. Are there ways to reduce the cost of production?
Pricing is a complicated art more than a science, continue to perfect that art to guarantee the success of your e-commerce business.