Product Pricing

When pricing products, you must set the price at a point that will both contribute to profits and compel customers to purchase. You also need to cover the direct costs of the product and your operating costs.

The price a business establishes for its products is affected by several factors:

  • Amount customers will pay: This amount is sometimes the hardest to determine, especially before starting a business. Customer surveys can be especially helpful in determining how much customers will pay.
  • Break-even point: When the costs to operate the business are covered, any additional money is profit.
  • Competition: The range of prices offered by the competition may limit the price.
  • Cost: The price must adequately cover the cost of producing the product and provide a reasonable profit.
  • Marketing costs: When large amounts of time are spent marketing and distributing a product, the price will generally be higher.
  • Marketing strategy: You may add a premium to your price to appeal to a certain market.
  • Location: Location will affect the price charged for a product.
  • Personal goals: The price should contribute to overall profitability and help you reach your personal goals.
  • Uniqueness: A higher price can be charged for a unique product with high customer demand.

Pricing Services

If you have designed a service with greater perceived value, you can charge a higher price. Experts report that professionals who charge fees in the upper range of the pricing bracket usually have a large client base and high profitability. Prices for services can be based on your reputation, years of experience, amount of competition, length of time as a service provider, and what the market will bear.

Consider non-billable time and taxes when setting prices. Include enough margin to pay federal and state income taxes and payroll taxes, including FICA (Social Security and Medicare taxes) and federal and state unemployment taxes. Be sure to use income tax rates based on your own individual tax situation.