So you have a goat to sell but you don’t know how much to price it. What do you do? Correct product pricing is one of the most difficult things to do for a business. Under-price and you risk not making enough money to run your business and setting an expectation for your customers you cannot sustain. Over-price and you may not be able to sell the product at all. It takes a combination of math, research, and gut feeling to come up with a plan, as well as an openness to change when business requires. Product pricing should be a fluid process that you perfect over time with experience. That being said, how do you start?
Here are the 4 main steps to Product Pricing:
Step 1: Determine the Cost for Each GOAT
How much did you pay for your goat? Did you raise it from a kid? How much did it cost you to feed it and keep it healthy? These are the questions you must ask to establish a baseline.
Let’s say you raised your goat for 6 months and it cost $1 to feed it per day, plus $100 to for all the necessary medication to keep it healthy, the formula would be:
180 (days assuming 30 days/month) x $1 cost to feed + $100 = $280
This is your break-even cost for each goat.
Step 2: Determine Your Business Operating Cost per Year
You have a farm to run, without which you won’t be able to have your business. These are usually cost for the space, cost to run the space (electricity, water, insurance, etc.), labor, cleaning, cost to fix the barn, additional medical bills for unexpected sicknesses, taxes, accounting, seasonal labor for when you go on vacation.
Add all your costs together for the year = Cost to run your business
Let’s say it costs you $36,500 per year. This is what you need to break even.
Step 3: Research Your Competitors
Look at a range of competitors from large farms with thousands of goats to boutique farms that have far fewer. Where are you in the product pricing range? Once you’ve established that, look at the differentiating points between you and your competitors. Are your goats happier, healthier, better taken care of? Are you only feeding them with the freshest grass and organic fruits? Not all operating costs are the same and consumers understand not all goats will cost the same. There is perceived value attached to every product. Know your worth (or rather, know your goat’s worth.)
Let’s say your farm is on the high end because you give your goats the best. Your competitors charge $1,000 per goat at the highest end and $500 at the lowest end. That’s a pretty big difference. In order to charge $1,000 for your goat, ask yourself whether you are in the right market and whether your demographic is the same as the one successfully able to sell at that price.
Step 4: Come Up with Product Pricing Scenarios
If you sell your goats for $1,000 each, you would be making $720 profit per goat. In order to pay for your operating cost, you’d need to sell 37 goats (with $500 to spare). Let’s say at $1,000 you can reasonable sell 50 goats, you will be making $50,000 per year.
Cost of operating your farm = $36,500
Plus, Cost of 50 goats = $280/goat x 50 = $14,000
Your cost = $50,500
Gross sales = $50,000
Minus, $50,500 cost
Net = -$500
At $50,000 per year, you would be losing $500 a year to do your business.
Let’s say if you reduce the cost of goat to $800, you can reasonable sell double the number of goats, making your business $80,000 per year.
Cost of operating your farm = $36,500
Cost of 100 goats = $280/goat x 100 = $28,000
Your cost = $64,500
Gross sale (100 x $800) = $80,000
Minus, $64,500 cost
Net = $15,500
At $80,000 per year, you would be making $15,500 per year from the business
Now, let’s say you want to make even more and want to triple the number of goats you sell. However, you’d have to reduce the price to $700 to maintain a competitive edge at that volume.
Cost of operating your farm = $36,000 (assume it’s fixed)
Cost of 300 goats = $84,000
Your cost = $120,000
Gross sale (300 x $700) = $210,000
Minus, cost = $120,000
Net = $90,000
If you are able to sell 300 goats at $700 per goat, you would net $90,000.
Now, making $90,000 is pretty amazing for a goat farm. But let’s also look at other factors affected by running a business that large. Assuming you’re not doing anything to update the infrastructure such as building bigger shelters or hiring more labor to help with the goats, your business may suffer, which eventually would affect your day-to-day and eventually your relationship with your customers. If you do decide to upgrade the infrastructure, this will then add to your cost and decrease your net profit. Also, ask yourself whether this would affect the DNA, the brand of the business. Will the happiness of your goats suffer because of this, thus affecting the quality of your products?
There are many factors that go into product pricing. Your cost for the materials, operating cost for the business, and how your product is priced against your competitors and within the market all affect how you should look at product pricing. At the end of the day, it should be done in a thoughtful, methodical way so you may make incremental adjustments that will ensure your business stays in business for years to come.
Need Help With Your Marketing Strategy – We can help!
If you have a GOAT or just about anything to sell but don’t have the time to create a robust Marketing Strategy that meets your business’ needs, let Key Paragon help. We are a Marketing Solutions and Advisory firm. We partner with our clients to address their most important marketing challenges, whether it be branding, strategy, process automation, social media, analytics, or marketing technology. Happy GOAT marketing!
Want to know more about How to Market Your Goat? Take a look at our other blogs here.
Sarina is a writer, marketing expert, and entrepreneur. With degrees in Psychology and Visual Arts, she blended both disciplines in careers as an advertising producer, corporate marketing strategist, small business owner, and author. She believes at the core of every challenge lies the human heart, and solutions can only be found by exploring it.
An avid seeker of answers, Sarina is also the founder of Wandering Wonder Woman, a blog site with a mission to close the gap between people and places by sharing travel stories, food recipes, and advice from a global village of women.
Erika is a data and targeting expert. She has developed many segment analysis processes and target populations in order to support business initiatives. Her passion in chaos theory and fractal analysis helps her view data in a very unique way.
Erika enjoys also reading about the future of work and how we can bring it closer to the present. “How we work today will be so different in 10/20 years from now. It’s exciting to see what will happen given all the economic, human, and technical evolution we are currently experiencing.”
…and Han shot first…