Pricing your products not only influences profits, it affects the sustainability of your business.

When we start our businesses, we tend to set low prices – as a means to attract customers. The view is – if the product seems affordable, customers will come knocking. This is not entirely true – what is affordable to you is not necessarily affordable to me. That is why I do not have a Louis Vuitton handbag.

What should influence your price is the following:

  1. Cost of making the product or service

The experts call these manufacturing costs. This is everything you pay to make or source the product or provide the service. It includes the cost of the time spent to make the product or provide the service, raw materials, and software license fees

  1. Cost of delivering the product or service to the customer

This is what you pay to get the customer to experience the product. Marketing, so they know about it and delivering the product so they experience it. If you operate a catering service, your price should include a delivery fee – this can be a flat fee or you can base it on the distance traveled.

  1. Cost of being in business

Again, experts have a fancier term – overhead costs. The costs of being in business include the telephone line you use to contact customers or for them to contact you. The cost of the website, office space and the monthly salaries you pay your team (this should include your salary – even if you cannot afford to give yourself a salary just yet)

  1. Cost of staying in business

Profits keep you in business. That is why most entrepreneurs want to make a profit – to stay in business. This money should be available to reinvest in the business to make it more effective and efficient.

 

In essence, the price you set should cover the cost of making and delivering the product, added to the cost of being in business. Profit is what is leftover once the customer pays the price to experience the product.

In essence, the price you set should cover the cost of making and delivering the product, added to the cost of being in business. Click To Tweet

Create a valuable product and service for your customers, and the price will be right.