Wednesday, 12 October 2016

Pricing your products: An introduction

Hello readers, today I am going to be writing about ways you can price your products. The pricing of your products will contribute to the success of your business. Prices must be high enough to cover your cost as well as make you profit. Your price must cover your costs if not you will be making losses and you definitely do not want that to happen. Some individuals put a markup on their costs, some use a profit margin, others use similar prices to that of the competitors.

The most popular method used is the profit margin. A situation where profit is calculated as a percentage of the sale price. A 20% profit margin on a sale price of  $150 will give you $30. If you just have your cost price which we can infer from this is $120. Your sales price will be $120/(100%-20%) . You will get $150, from there you will know your profit will be $30. This is one way to price your products.

The second method you can use is the cost markup, which is a situation whereby you add a fixed percentage to the cost of your products to get your sales figure. For example, a mark up of 25% on a product costs of $100 will give you $25 as your profit, thus your sales price will be $125.  This is another method you could use. You should know the difference between the profit margin and the cost mark up.

The third method is the competitive pricing. This is a situation where prices are fixed based on the prices of other competitors. For example if competitors are charging $20 on a small pack of rice, someone using this pricing strategy will also charge $20 for his/her own pack of rice. Competitive pricing is used when it is difficult to differentiate your own products.

That is all for today, thank you for reading this article, keep checking my blog regularly, cheers!

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