Business 101: What Price Is Right?

Pricing your products may not be rocket science, but it is a science of a sort. Setting your prices too low will impact your profit margins. Charging too much can drive potential customers away.

First things first: You need to figure out how much it costs to operate your business. That includes fixed costs such as rent and variable costs such as utilities and marketing expenses. These are considered “general and administrative” costs. Whether you sell or manufacture products (or both), list all the costs (materials, supplies, equipment, etc.) that go into making or purchasing your goods. These are the “cost of goods sold.” From that number, determine what each item costs you to make (or buy), which is your per-unit cost of goods. Subtract that figure from what you charge per item, and that’s your gross profit. But don’t stop there.

You also need to consider how much your competitors charge for similar merchandise. Rather than trying to beat the competition by offering lower prices, it might make more sense to offer something extra. This could be something as simple as free gift wrapping. Recent surveys show consumers are looking for value, but they understand the concept of “you get what you pay for.”

Be flexible with your pricing structure. Experiment with prices and see what works best. To ensure your prices are current, regularly monitor the marketplace and pricing trends in your industry and region.

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