Eventually, an independent business owner must price his/her product/service.
To many this is unexplored territory.
However, it does not have to cause too much trouble.
Basic principles
You just need to be aware of a few conditions.
- Market mechanisms allow you to fix a high price on your product/service if
there is a great demand and a poor supply.
- Oppositely, if there is a poor demand and a surplus of similar
products/services in the market you may be forced to fix a low price.
Expenses
Before your product/service reaches the customer, a number of cost
accumulating activities have taken place – activities such as:
- Purchase, cost of sales and maybe also raw material processing
- Wages
- Freight, import duty
- Administration, etc.
Plus profit
Once you have determined your expenses you can easily fix a "break even
price" on your product/service. Add your required profit and you have a
sales price.
Plus Taxes
Do not forget to add VAT, Sales Taxes or other expenses demanded by the state if
it is obligatory in your country.
The calculation
The calculation could look like this:
Cost price /Raw material
+ Cost of production
+ Profit
= Sales price (+ VAT, Sales tax etc.)
Other factors than price
Price is of cause a competitive parameters, but not the only one. You should
also pay attention to a number of other conditions: service, quality, close to
market, prestige, "the good story" etc.
- Go to next
business issue: Prices - Based on The Market
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Copyright © 2009 Dynamic Business Plan 21-05-2012
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