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Entrepreneurs - How Do You Set Your Prices?
Written by: Lee ListerArticle 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?
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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!
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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About the Author: Lee Lister RSS for Lee's articles - Visit Lee's website Lee Lister is a Business Consultant with more than 25 year's consultancy experience for many household names. She is known as The Bid Manager or The Biz Guru. From an early age she began an unparalleled journey through business consulting that continues to span across the UK, USA, Europe and Asia. She has consulted for a considerable number of companies all over the world. Specialising in business change management, start up consultancy and trouble shooting. Lee's experience in marketing and internet marketing is also keenly sought after. She is a prolific published writer of books, ebooks and articles and can easily be found on major search engine and Amazon. Her books include: FastTrack Bid Management, Proposal Writing For Smaller Businesses, How Much Does It Cost To Start A Business, Entrepreneur's Apprentice and a series of Start My New Business books that do as they say in the title! Her major web sites are: Click here to visit Lee's website Entrepreneurs Have You Got What It Takes To Succeed MySpace Thats Not For Those That Remember The Beatles Web Sites What Do You Need To Do And More Importantly Not Do Entrepreneurs Selling The Benefits Of Your Products To Your Wholesalers Entrepreneurs Got A Great Business And Want To Capitalize As Quickly As Possible Heres Some Exit Strategy Ideas |
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