How to price a product

Define the price of the products or services that commercialize is a delicate process in each company, since that if you set a high price you can scare your potential customers, while if a product with a low price tag can result in losses for your company and even a bad image of your business.

price a product

Although it may seem, most business owners still sets the price of their products according to the provisions of its competence.

Here share tips for setting the price of your products or services:

Meet the production process
Although it seems obvious, it is necessary that the owners of a company to know how much it costs to produce a product or provide a service, since in many cases the failure to properly calculate the cost of time or of the work.

Do the Math
Know how much you earn with each sale and determine the gross margin, ie the difference between total revenue and production costs.

For you to understand this point better do this exercise: 10 soles per sales you receive you must determine how you’ll allocate to pay employees, materials, utilities and processes to develop a product. If the answer is $5, your gross margin is 50%.

Includes administrative costs
While you have a gross margin of 50% or more, does not necessarily mean that you are making money.

Keep in mind that the prices you set should reflect what it costs to do business in total and in many cases this may involve much more, such as rent, utilities, budget marketing and other operating costs to keep running day after day.

When you calculate the net margin, also consider the cost of your management team: the receptionist, the manager, customer service manager, the accountant, sales executives and other employees.

Takes into account to third parties
If your business depends on third parties to sell your products or services, it is important that the price you are going to set includes a section to include these expenses you will have to. Remember that the cost should leave one sufficient margin to give its share to dealers and, even so, still get profits.

Constant review
Once you choice the price of your product or service you should make a review of the previous points at least once every four months and make necessary adjustments, especially if the cost of one of your key components increased in that period.

Remember that if your company is able to generate a good relationship with customers and provides a service or sells a product that meets the needs of consumers can raise your prices without losing business and build a solid financial foundation for the future of your company.