Factors to consider when determining price
Your business finances will be directly affected by the price of the product or service that your business sells. Because of this major impact it is crucial that you take the time to carefully figure out the pricing you will be using. Business finance experts stress that you only have one time to get the price exactly right. If you price your product or service to high it may drive your customers to your competition however, if you price your product or service to low your customers may not see the value of what you have to offer. This means that business owners should take several different factors into account before setting a price to insure that the finances of their business will be in the healthiest condition possible. Here are factors to consider when determining price-
- Determine the cost of making the product-The first step in pricing is to figure out how much it cost to make the product. Common sense indicates that your pricing will need to be able to cover the all of the costs of making the product as well as providing profit. This means that you will need to take into account both the fixed and the variable costs in the production process. This will help you to determine what the price per unit is for the product that you sell. While this can be a challenging calculation to make having the right number will facilitate the rest of the pricing process. If you are trying to determine the cost of the service that you provide there are different calculations that will need to made since there is no tangible production cost.
- Determine the industry standard-You will also need to take into account the industry standard for the product or service that you provide. Do not be fooled into thinking that you don't have competition. No matter how unique your product or service you will have competition.This means that savvy business owners will make sure that they know what their competition is doing in terms of price. Keep in mind that today's consumers can literally check prices from around the world with the available technology. This means that you will need to do that, as well if you want to remain competitive.
- Determine the demand-You will also need to determine what the demand is for your product or service. You will have to factor in the overall demand for your product or service into the price that you select. Keep in mind that there are many different factors that can influence demand. These factors include but are not limited to: the needs and wants of your target market, the income level of your target market, the current market conditions, and even what your competition is offering. You should also be aware that if you are offer a product or service that works with something else then the demand for them both will go up and down at the same rate. The best way to determine demand is by doing carefully and concise market research.
- Determine the lifecycle-Finally, you will need to take into account the lifecycle of the product or service that you offer. Every product and service will have its own unique lifecycle. The bottom line is that if you offer a trend item or something with a short lifecycle you will price it much differently then a long term, classic product or service that will be around for years to come. Knowing what the real lifecycle of your product or service is will help you in determining the right price.