How you price your product or service will determine your success--perhaps an obvious statement. However, while the importance of pricing may be obvious, how to price may not be.
The internet alone contains a plethora of information on the topic. Inc.com alone has a three page article with links to other more specific articles scattered throughout the main one. This article will highlight foundational principles of product pricing.
1. Know exactly what you want. Expansion of the business? A higher salary for yourself? For your employees? A greater market share? The list could go on. Specific, measurable goals for the profit you generate will help determine how to price your product or service.
2. Know exactly what your product or service is worth. Once you've determined what your product is worth, you can then begin on setting the price. You obviously wouldn't sell a new candy bar for thousands of dollars, but you may just find a collector willing to buy an old one. Worth should be viewed not only from a producer's standpoint, but a customer's standpoint. Which leads us to the third point:
3. Know your customer well. Whom do you plan to target with your product? Those interested in prestige? Those interested in penny pinching? Knowing who would be interested in your product, and what they consider to be a fair price is vital to establishing an adequate price.
These three principles are just a beginning to what you should keep in mind when pricing a product. Also, keep in mind that pricing is both a science and an art. In other words, some of pricing is tangible, fact driven. How much does it cost to produce product X? How much profit do I need to make to meet my business goals? Pricing is also like an art in that you need to consider questions that require experience and creativity to answer: what price range works to convey the worth of my product, satisfy my profit requirements, and also seems fair to my customers?; what products can I use just to get people inside my store?; how do I get customer feedback on pricing?
Product pricing requires diligent research and willing experimentation in order to meet the needs of customers and producers.