Pricing your product or service is one of the most important business decisions you will make. You must offer your products for a price your customer is willing to pay, and one that produces a profit for your company, or you won’t be in business for long.
There are many approaches to pricing, some scientific, some not. Let’s examine cost, the total of the fixed and variable expenses (costs to you) to manufacturer or offer your product or service; now let’s look at price; the selling price per unit customers pay for your product or service.
Remember the price you set is the cost to the customer and should be higher than the costs you incurred in producing the product.
Think of your cost as the city of New Orleans, and you must set your price above the levee or you will quickly drown or go out of business. A major issue arises when you have to determine how the customer perceives the value of the product and the maximum amount he/she is willing to pay; namely the price the market will bear. How do you place a value on your product? Perceived value is created by your established reputation (if you have one), marketing messages you send to customers, your packaging and labels and the current sales environment.
The right price for your products really exists somewhere between your cost and the price the market will actually bear. Are you really getting what you’re worth?
