Let’s examine 5 different ways in which the price of products or services can be determined. We’ll consider factors that will also determine the best option for your specific business to use. Each has its own set of pros and cons. Here are a few things you’ll need to know in order to make a decision.

If you’re sitting on top of the market for a product, then you can sell it at a premium. Obviously this is a desirable position to be in – the problem is that unless your product or service has little competition, this is generally not a good starting point. If your competitors have been selling the product or service for a longer time then you will likely have to match the prices they have set.

Does this mean you should bargain price your product to undercut the competition? While this may get you some quick sales, you don’t want to immediately establish your product or service as being at the bottom of the industry totem pole. If you can provide better quality at the same price as your competitors, customers will recognize your product or service as having the greatest value despite a notable price difference.

What about something in between? For example, you may want to completely ignore your competition and just look at your costs. You want to make some money on your product right from the beginning, so you can simply set the margin of profit however you like. The problem here lies in building a customer base. Sometimes it’s better to just break even early on to ensure that you draw in new customers. Once your brand has built its reputation you can command a higher price – but that is difficult to do during a new startup.

Be sure to consider all factors in the ownership cost of a product. When a person buys your product, how much more money will they then have to sink into maintaining it, insuring it and operating it? If the answer is a very small number, you have a limited range in which you can set your price. If most of the product’s cost will be experienced after the initial purchase, individuals may not care how much they have to shell out up front. They are already expecting ongoing expenses, and a lower price may not even result in more purchases.

Try to get inside the mind of your consumer. Ask how much they are willing to spend on a particular product or service. Charging a rate that is competitive is always a good approach. Find out what people have paid for your product or service in the past, and see what your competition offers as deals.

Since every business, product and service is at least a little different, the pros and cons of each of these pricing modules will have to be considered. What works for one company may not work for another. Even different products within the same company may call for different pricing methods.