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
In order to properly price your product
you have to take these things into
It Cost You To Produce The Item:
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
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.
much you markup an item is totally up to you.
Here are some examples.
assumes that you will sell the item yourself:
Your production cost:
You set the retail price at:
This gives you a markup of 75%:
example assumes that you will sell the item
through a 3rd party retail chain.
|You set the
retail price at:
|This gives you
a markup of 75%
minus production cost:
markup is 35% of Retail price:
markup is 10% of retail price:
Distributor & Retail markups, this leaves you
after production cost is taken out only
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 your competitors are charging for the same
or comprabable item.
Ask yourself, are you offering the same
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
What is the average
income of your customers and potential
If they are in a high income bracket
charging a little more will not have negative
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
Doing so will drive away customers
instead of bringing them to you.
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.
Review of Pricing Strategy:
Periodically review your
pricing strategy to ensure that your business
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.