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Pricing - focus on expenses
A startup business must decide the pricing strategy for his/her product or service. To many this is unexplored territory. However, it does not have to cause too much trouble.
Supply and demand
You need to be aware of relatively few conditions when deciding your pricing strategy. Condtitons which apply for all products and services:
- 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.
Pricing - focus on 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.
Break even
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. Do
not forget to add VAT or other expenses demanded by the state if it is
obligatory in your country.
The pricing calculation could look like this:
Cost price /raw material
+ Cost of production
+ Profit
= Sales price
Something else than price
Price is only one of many competitive parameters.
You should also pay attention to a number of other conditions: service, quality,
close to market, prestige, "the good story" etc.
- See also: Pricing - focus on the market- Go to next
business issue: Contribution Margin
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