What are the basic components to consider while doing product pricing?
But before that shall we distinguish between a product cost and a product price?
Product cost is the amount that is incurred to come up with the product to be sold, while on the other hand product price is the value that the consumer or customer will pay for the product.
The goal of anyone in business is to increase their profit margins while keeping their cost mark-up at the lowest percentage possible, don’t get lost at how we’ve used these two terms but allow us to define each for you, the profit margin is the amount that the owner of the business will make from the product they are selling after charging all the costs involved in the production and distribution, while cost mark-up is the difference between the cost of purchasing the product and the selling price.
In today’s article, we wish to discuss some of the factors that one should consider while pricing a product as well as the tools that will help you do proper pricing, with this discussion by default we’ll have covered the cost part as well as shine light on some of the cost that may have skipped your consideration.
This topic does not only consider the manufacturing industry, but we shall be viewing it from a general viewpoint, but if you think your practice needs more guidance or customization, we’re always here to offer the necessary guidance you need, just reply to the comment box and we’ll get in touch with you.
There are several costing techniques available and they include but are not limited to direct costing, competitive costing, process costing, cost-plus costing, throughput costing, mark-up pricing, demand pricing, and job costing, depending on the industry that the product belongs to, it is vital to match the costing technique to the industry. Otherwise, a company may find itself using an incremental costing technique to guide long-term decision making, in as much as there is nothing wrong with the technique what this means is that the budget figures in this case that will be used to plan do not reflect the correct amounts that will actually be incurred to achieve the goals being set.
As the person in charge of pricing any product it is paramount that you settle on the price because of logical reasons and not because of emotional basis, we mean with this, do not price a product because that is what you think the market is willing to pay, have some factual basis, this should only be thought of consideration in the pricing process but the basis.
As you consider what pricing method to go for its paramount to also remember there are other variables to have at the back of your mind like the level of competitiveness of the product in the market, a saturation of the product in the market, other retailers selling price, and in case of goods how long have it been in stock for.
With the suitable pricing technique at hand and a qualified product, chances of an efficient breakthrough are high.
MA Financial Services Consultants