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Entrepreneurs - How Do You Set Your Prices?

Written by: Lee Lister

Article Overview: You’ve set up your new business or you have an established business with new products, so you come across that age old problem – how do you price them?

Entrepreneurs - How Do You Set Your Prices?

You’ve set up your new business or you have an established business with new products, so you come across that age old problem – how do you price them?

Well first of all you can only charge what the market will allow at the moment unfortunately. In periods of recession, people are very price sensitive. Luxury items are difficult to sell and people want to buy a bargain. So in difficult times you need to keep this at the forefront of your mind.

Of course, you will also need to undercut other established markets, so you will need to research these well. Find out what your competitors are charging and keep this in mind.

Now look at your expected expenses for producing several of the items. At the start of your business you will only be producing and selling smaller amounts so look at your expected volumes when investigating your costs. Also take a look at your overheads and factor in some of these as well. At the start of your business you will have to cover most of these in your set up costs in order to have a viable product price.

Lastly look at the cost of sending the item to your customer – your fulfilment costs. You can add these to your product as “post and packing” if you wish.

You should now have a total cost of producing and selling the item. Now you need to make a profit in order to stay in business. Many businesses have a working gross profit (GP) that will keep them profitable and your accountant will be able to advise you on this. Other wise look at a figure of between 15% - 75% depending upon the product.

So your price is a mixture of:
• The cost of producing and providing the item, plus some of your overheads.
• The % profit that you want to add to the cost of your item.

This will be tailored by:
• The perceived value of the item to your buyer.
• The price of similar items that you or your competitors are selling.
• The price that you believe the market will stand.

You should also ensure that you do not under price the item so that it is seen as a cheap copy of existing similar products. Cheaper is not always better!

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Article Tags: accountant, bargain, difficult times, forefront, fulfilment, gp, gross profit, luxury items, mixture, new business, overheads, periods, recession, similar items, viable product, what your competitors



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