Business Plan

Pricing

How you price your product is important because it will have a direct effect on the success of your business. Though pricing strategy and computations can be complex, the basic rules of pricing are straightforward:

1. All prices must cover costs.
2. The best and most effective way of lowering your sales prices is to lower costs.
3. Your prices must reflect the dynamics of cost, demand, changes in the market and response to your competition.
4. Prices must be established to assure sales. Don't price against a competitive operation alone. Rather, price to sell.
5. Product utility, longevity, maintenance and end use must be judged continually, and target prices adjusted accordingly.
6. Prices must be set to preserve order in the marketplace.

There are many methods of establishing prices available to you:

• Cost-plus pricing. Used mainly by manufacturers, cost-plus pricing assures that all costs, both fixed and variable, are covered and the desired profit percentage is attained.
• Demand pricing. Used by companies that sell their product through a variety of sources at differing prices based on demand.
• Competitive pricing. Used by companies that are entering a market where there is already an established price and it is difficult to differentiate one product from another.
• Markup pricing. Used mainly by retailers, markup pricing is calculated by adding your desired profit to the cost of the product. Each method listed above has its strengths and weaknesses.