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How to price your product or service

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A major consideration in the finances of your business is where you price your product or service. If you price your product or service to low, then your potential customers, may discount the value of it, and turn elsewhere to buy. Conversely, if you price your products to high, your customers may look elsewhere, for a better deal. Either way the finances of your business can be seriously affected. There are several different factors that should take into account when pricing your product or service, to help insure that the finances of your business are healthy. Here is what you need to know about how to price your product or service-

  • Consider the cost of making the product-Production costs of any product (and some services) usually will entail both fixed and variable costs. You need to take all costs into consideration when pricing your product or service. You will have to break down the entire cost, to a per unit price, to determine who much of the price of whatever you are selling, will have to go towards production costs. This can be one of the most difficult calculations that you have to make, however, if you once you have the right figure, the rest of pricing, becomes significantly easier. Business finance experts recommend that you use the following formula to help you.<
    1. Estimate what the total fixed costs are.
    2. Estimate what the total variable costs.
    3. Add both the fixed and variable costs and then divide by your estimated total sales.
    This will then give you the cost of production, for each unit. This will let you know what the minimum price is that you have to sell at, in order to cover production costs.
  • Consider the demand in the marketplace-This is another important factor that you need to consider, before pricing your product or service. The overall demand for your product or service will have a huge impact, as to what price you are able to select. There are many different factors that can affect market demand as well, such as: current economic conditions, competition and the income level of your target market. Keep in mind that if you produce a product or service that is used in conjunction with another product or service, then the price of both of them will go up and down together. Careful market research will let you know what the current demand, for your product or service actually is. You should use this in determining the pricing strategy that you will use.
  • Consider the lifecycle of the product or service-Each product and service will have a unique product lifecycle. Whether your product or service will have a short or long cycle in the marketplace, should be considered when pricing. For example-If you are selling a product that it considered a trend item, then you will price it differently, then if you are making a product that could be around, for years to come.
  • Consider the industry standard-No matter how great or unique, that you think your product or service is, if it does not match the pricing that is the industry standard, there is little chance that you will capitalize on it. Today's consumers are highly tech savvy. Where there was once limited information on competing prices, today's customers can check prices, from locations around the world. You will need to take into account what these prices are, when pricing your product or service. Keep in mind that pricing to low is rarely productive, and pricing to high will most likely leave you out of the marketplace.
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