As a business owner, it is vital that you are pricing your products right so that your business can be sustained. Sometimes, small business owners make the mistake of pricing their products wrong and it ends up being the demise of their business. It the prices are set too high, customers will be turned off by the products all together. If the price is too low, then you are faced with the dilemma of filling orders that you don’t have the money to produce in the first place. It is vital that small businesses find the right price point for the products that they offer. Mark Dicus & Company is here to share some tips to help small business owners price their products just right.
Understand Your Costs
It is vital that small business owners know how much it costs to produce their products. If you are ordering your products from a supplier, this is a pretty easy number to figure out. However, if you are a business that makes your products yourselves, you are going to have to take a closer look to understand your variable costs. You will not only have to think about the materials needed to make your product, but you will also need to calculate your time and decide what that is worth. Consider how much you would like to make per hour and divide that by how many products you can make in that time. Doing market research can also help you in pricing your products right.
Don’t Forget a Profit Margin
Once you have a solid understanding of your variable costs, you can start to consider the profit margin. All products have an “acceptable” price. It is important that you are pricing your product within that margin. If you’re looking to have a 20% profit margin, you should take the total of your variable costs and divide them by 1 minus your desired profit margin expressed in decimal form. This is an important step in making sure your products are priced where they need to be to sell well.
Fixed Costs Matter as Well
It’s important to know that your variable costs aren’t the only thing that matter when pricing your products. You will have fixed costs to worry about as well. Fixed costs are the expenses you are going to be paying no matter what. This might include rent, utilities and other costs that you are going to be paying regardless of how much product you’re selling. The sale of your products needs to be able to cover these fixed costs as well.
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If you’re having a difficult time figuring out how to get your business up and running, you can turn to Mark Dicus & Company to help. We offer small business consulting that can help you find the success you’re looking for right out of the gate. Call us today!