How To Set Your Price
Two things pop up in our minds when it comes to pricing: first, how much we spend for each product, and second, how much we want to go to our wallets at the end of each day. However, pricing actually goes beyond the production cost, labor cost, delivery expenses and fair market values.
On the finance side, your continuing source of funds for operation and production is the gross profit you earn after selling your products or services. Determining your product or service pricing should therefore start with the question, “How much do I spend to make one?”
On the marketing side, price often elicits immediate reactions from the consumers. The three most common are: 1) high priced but probably with supreme quality; 2) cheap but would probably break apart the moment I turn it on; and 3) moderate price, but what makes it different from the next product?
These are just some of the aspects that pricing touches, but the list goes on. These just tell us that we must be careful yet very strategic in setting the price. Here are some of the things to remember in pricing your products or services:
Position your product in the market. It must not be unreasonably far off from the competitors. Remember, there is a reason why their prices are very close to each other, and that is because those prices are within the optimum price (how low or how high consumers are willing to pay for a certain product or service). Some products are noticeably high-priced, as they have effectively penetrated the market with that image, have their exclusive loyal fan base, or specific market with the upper class. Others are moderate- to low-priced because they are aiming for the mass market. Set a price that suits your target market.
Answer for your cost of sales (COS) and other business expenses. Remember that your total price must be able to answer for all the costs you have incurred in making the product or performing the service, including overhead costs, operating expenses (rent, electricity and water bills), marketing expenses, etc.
Reach your target income. Being able to cover all necessary expenses is part of it, but actually earning is a different part of the picture. Although you are able to reach your break-even point and produce the next batch of products to sell or services to perform with your previous sales, how much do you actually earn? Stretch your price to a certain amount that will let you at least earn adequately to support your desired profit. Make your sales worth the effort.
To know more about this topic, BusinessCoach, Inc., a leading business seminar provider, conducts an excel lent seminar entitled “Fundamentals of Pricing.” Contact (02) 727-5628, (02) 727-8860, (0915) 205-0133 or visit www.businesscoachphil.com for details.
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*Originally published by the Manila Bulletin. C-6, Sunday, April 27, 2014. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.