1. Introduction - There are many pricing strategies taught in school and some entrepreneurs swear by a certain golden formula. However, you may want to consider the right pricing strategy for the market that you are planning to enter. Nothing beats market survey to really give you a good guesstimate.
2. Mark-up Method - This is a common and simplistic method to price your services/products. You need to know the profit that you want to generate (usually in terms of % or $) from each sale. So a simple formula will be:
Per Unit Price = Per Unit Cost of Services Or Goods x (Mark-up % + 100%)
Per Unit Price = Per Unit Cost of Services Or Goods + Per Unit Mark-up $
Your profit per unit should therefore be equivalent to your per unit mark-up in an idealistic world. However, there are other incidental costs that you may not be able to categorise or include easily in the fixed or variable costing. There are also costs such as new equipment purchase and unexpected expenditure along the way. Such costs will therefore eat away at your per unit mark-up unless you are quick enough to adjust your pricing accordingly. You may however have to explain the fluctuations of your pricings.
3. Positioning Pricing Method - This is a more complex method to price your services/products. It involves a lot of research into the segment that you are targeting and requires you to know the spending power of your clients or the market pricing of your services/products. Your choice in setting the final price per unit may be limited by one or more of the following considerations:
- Pricing Range A Client Will Pay For Similar Product/Service
- Client's Perception Of The Additional Value Of Your Product/Service
- Exclusivity Of Your Product/Service
- Branding Value Of Your Product/Service
- Marketing Strategy Of Your Product/Service
Your pricing will be subjected to moving market sentiments as well as pricing strategies of your competitors. As such, you will find that sometimes the profit margin may not be sufficient to cover your costs or may not justify the work completed. However, this method is successfully used by companies who are able to keep costs low and/or maintain exclusive value to their products or services.
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