How to determine the price of a product

Pricing a product is one of the most difficult issues in business. By and large, the market determines the price of a product, but you also need to consider the cost of production of your products so as not to work at a loss.

Instruction manual

1

Define the variable costs per unit of output. These are the amounts of cash investments, the size of which varies depending on the volume of production, divided by the number of released goods.

2

Calculate fixed costs. Their size does not change depending on the quantity of goods produced. They may include rental and utility payments, salaries of management personnel, depreciation of equipment, trading costs, etc.

3

Decide how much you will produce. This quantity can determine both the capabilities of the production itself and the size of the market.

4

Decide on the level of income that you would like to receive. Add to it all the costs of manufacturing products and the additional costs of expanding production. This amount, divided by the number of products produced, will give the required price.

5

Analyze the market. Compare the prices of similar products and substitute products from your competitors. Adjust the value of the goods you produce according to quality. If the products of competitors are slightly worse, then you can set a price higher than that of competing enterprises.

Useful advice

Always put yourself in the shoes of potential customers. By greatly lowering the price of a product, you can form their opinion on the low quality of your products. And at a higher cost, they may not want to buy the same product as your competitors. If you do not have time or experience in studying the preferences of your target audience, it is best to have a good marketer on staff or to seek help from a specialized company.

When changing the price of a product, you need to understand well what you want to achieve. In addition to profit growth, you can expect an increase in the share of your company in the market, in which case a price reduction will be the best choice.