Pricing your product or service correctly takes some careful analysis and effort.  Pricing your product or service properly is key to making a profit and ensuring the survival of your business. If your price is too high you will scare off potential customers.  If it is too low you will not make a profit.  In order to properly price your product you have to take these things into consideration.  

What Did It Cost You To Produce The Item:

Your production cost and overhead cost is a key element to determining what you should charge for the finished product.  You have to charge a price to covers your cost in order to make a profit.  If you donít you will not have a profitable business.

What Is The Distribution & Retail Markup:

Distributors and Retailers take a percentage markup in return for distributing and selling the item so that they can make a profit.  Every entity in the distribution chain will charge a percentage of the retail price in return for providing their services.  Distributors can charge as high as 35% depending on the product.  The less entities you have in your supply chain the more profits you will be able to make. 

Markup is a percentage of the retail price.  For example, if your markup is 50% and your cost to produce the item is $1.00, your selling price will be $2.00.  You can chose to add the packaging & shipping cost to the total production cost or leave it out if the customer will be picking up the tab for it.

How much you markup an item is totally up to you.   Here are some examples.

This example assumes that you will sell the item yourself:
Your production cost:                       $10.00
You set the retail price at:                $40.00
This gives you a markup of 75%:   $30.00
Profit equals:                  $30.00


This example assumes that you will sell the item through a 3rd party retail chain.

Your production cost:                               $10.00 
You set the retail price at:                         $40.00
This gives you a markup of 75% $30.00
Sell Price minus production cost: $30.00
The Distributor markup is 35% of Retail price:               $14.00
The Retailer markup is 10% of retail price:                       $4.00
Minus Distributor & Retail markups, this leaves you with:  $22.00
But Profit after production cost is taken out only comes to:                              $12.00

Another way to calculate your retail price including the markup is use this formula:  The markup is a percentage added to 1 and multiplied by the total (wholesale) cost to determine the retail price. For example, if you have a bracelet that costs $10 at wholesale, and you want to sell it at 50 percent markup, you add that percentage to 1 to produce 1.50. You then multiply $10 by 1.50 to create a retail price of $15.00.

What Is The Competition Charging:

Examine what your competitors are charging for the same or comprabable item.  Ask yourself, are you offering the same value?  Maybe you can charge more by adding additional value, such as special features, customized service, etc.  Remember that your competitors may not have a storefront, but they may have an online business.

Who Are Your Customers:

What is the average income of your customers and potential customers.  If they are in a high income bracket charging a little more will not have negative reprecussions.  If they are in a lower income bracket they will not be willing to pay a higher price.  So donít reduce your price to the point where your product or service is perceived as cheap.  Doing so will drive away customers instead of bringing them to you.

Customers Perception:

Consumers want to feel that they are getting their moneyís worth when they purchase a product or service.  Most are unwilling to purchase from a seller they believe to have less value. 

Periodic Review of Pricing Strategy:

Periodically review your pricing strategy to ensure that your business remains competitive.  Your competitors are doing the same.  Cost for raw materials and labor changes over time and hence you have to re-evaluate your price to ensure that you are adjusting it to make a profit and stay competitive.