In this post, we tell you how to set the correct sales price for your products or services.
From the concept that you have of your own company, it is necessary to sit down to consider the viability of the product or service, in other words, the costs.
- How much does it cost me to produce this product?
- How much do I want to earn?
These questions are essential because it is a business, and so must generate income and profit in order to survive and prosper.
According to the theory of prices, by Milton Friedman, the formula for estimating costs is as follows:
Total fixed costs + calculation of total variable costs = the sum of fixed and variable costs.
The sum of fixed and variable costs / estimated total production = cost per unit of production.
Based on the factors mentioned, you can determine the percentage of profit. If you want to use 30%, for example, add the profit percentage from 30% to 100%. Multiply 130% for the cost of your product. That will give you the sale price for your product.
But if it involves steps, accountants in central London recommend the following to set your prices:
- Identify and evaluate the market to which your product or service is directed.Identify those who you will help solve a problem/ meet a need, where they are, how old they are, how many they are, and how they act.
2.Study the offer from your competitors. Being realistic, there is no industry in which there is no competition, so analyse the price currently offered by your competitors: if it is a high price, very low or reasonable.
3.About your product or service, is it simple or complex? Define if it is durable or non-durable. A non-durable product is a product that meets a basic and immediate need, which is consumed quickly and therefore has a low price.
4.Set your fixed and variable costs. For this it is necessary to quantify the fixed costs that you will have to cover every month so that your product can be in the market; examples of these costs are electricity, salaries, telephone, rent, etc. On the other hand, the variable costs are the costs that are totally related to your production quantity, that is, the raw material from which your product is made.
- Define your desired profit percentage. Once you identify the costs of your product, the next step is simple: how much do you want to earn or how much do you think your product is worth? I recommend that you assign it as a percentage because this will make it easier for you to manage your business, define it in terms such as: “I want to have a profit margin of 25% for each product sold.”
6.Evaluate your value proposal. Doing this analysis is fundamental and it is necessary to take into account:
- What proposal are you giving to your future clients?
- What value will your product or service give them to solve their problems/meet their needs?
- Does your product have an adequate combination of low variable costs and a good quality product?
- How effective will you be in solving your clients’ problems or meeting their needs compared with the competition?
Considering these factors will enable you to accurately calculate the best price for your product or service.
IMAGE: Designed by Freepik
