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How much is your product worth? How much should you charge for your services? How is the value of a product or service determined? This is often a very difficult assessment. The old reservation responses of “its value is what someone is willing to pay for it” or for a product “what it costs to manufacture” are not very satisfactory. Do any of those answers really tell us how to determine value? Do those answers tell us what price to put on a product or service?

When it comes time to determine the value of a product or service, you should ask a few questions about what you are selling. I reviewed some of the questions Mark H. McCormack asked regarding value in “What You Are Not Teached at Harvard Business School: Notes from a Smart Street Executive” and modified them a bit from my own experiences to arrive at to this short list of things to consider when determining the value:

1. How much does it cost to produce? While this is not the value, it is a consideration when determining the value of a product. For a service, you can look at the time and what it costs in time to perform the service.

2. How unique is it? Is this a product or service that people can buy from the competition? Are the competitors cheaper than you? What sets your product or service apart from the rest? What is the advantage of your product or service compared to the competition?

3. How fast do your buyers need what you are selling? At first, experts didn’t think FedEx was a good idea. Who would pay more to have things overnight? Now, speed is a growing component of the value of a product or service. I know that at our law firm, speed is sometimes extremely important to clients and they will pay more for it.

4. What is the replacement cost? Something that is easily replaced may not be worth something that is difficult to obtain.

5. Is this a fashion item or an item that people will be very passionate about? Is it a premium product or service that people would be willing to pay more for? What is the perception of value of the product or service? Sometimes increasing the price of something creates value because people expect it to be worth more because of the higher price.

6. Is this a one-time deal or something that will continue in the future? Are you trying to establish a relationship with the consumer to continue with products or services? Are you selling a printer for less because you will make money selling ink in the future?

These are just a few considerations when determining the value of a product or service. Don’t be afraid to put a higher price if that’s what you’ve determined to be worth. As I said in number five, the higher price may actually help sales because consumers believe it has more value because of the higher price.

Even after considering all of the above, as well as other variables that pertain to what you’re selling, there’s still a bit of guesswork involved in setting the “right” price. Hindsight can show that your price was too high or too low. Too high and you can always cut the price to get rid of inventory. Too low and you may drive up the price for future consumers, or at least know better next time.

Determining value is not an exact science. However, if you consider some of the questions presented in this article, you will have a better understanding of how to price what you sell.

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