The main priority should be finding the right selling price for your product or service. It’s basically what puts you on the map and lets you stay here. Learn how to calculate selling prices right here.
Deciding the right selling price on a product or service is no easy task. It is an important one, though. Setting the right price is what’s going to attract customers and separate you from your competitors. If you haven’t got the right selling price on your products or services, your business simply isn’t going to make it. So, learning how to calculate selling price is vital. The good thing is there is more than one way to do it, depending on your strategy. But when you do calculate it, there are three essential elements to factor in your calculations.
1. Costs
If you’re already selling your products, it’s a good idea to calculate the average selling price, which is the total revenue divided by the number of sold units. This will give you an indication of the market prices. You should know the basic formula if you’re calculating your selling price or calculating it for the first time. First, you should know the difference between cost and selling prices. The cost price is the price you pay when purchasing items from a manufacturer. It’s also known as the manufacturing cost. The selling price is the price you then sell the product for afterward. Obviously, you need to charge more than you paid for the product. To calculate this, you can use a basic method called cost-plus pricing. Generally, you want to make at least 25%. So, you take the cost price and multiply it by 1.25. This will give you a starting point for a selling price, but there are some additional key elements to factor in.
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2. Pricing of competitors
One of them is the pricing of your competitors. You must analyze your market to find out where to place yourself. Some place themselves at the high end of the selling price scale, others at the low. It depends on your market and your product. But in general, it’s a good idea to enter the market with a competitive price. If you offer the same product as your competitors at the same price, you might just as well not have done anything.
3. Market demand
Another aspect is the market demand. As briefly mentioned, there can be many levels to place yourself in the market. It depends on your market tactic. It also depends on the size of the market and, thereof, the demand. If it’s a spacious market looking for new players, you can probably enter alongside your competitors more or less. But if you’ve entered a crowded and competitive market, you must separate yourself from the herd. In addition to that trail of thought, you should consider whether the product or service you’re selling is unique or rare when setting your selling price. The price will vary quite a bit depending on whether your customers can go just next door to get the same product.
Additional selling price calculations
There are several ways to go about calculating selling prices. Which one is the best one for you depends on your exact business model. Some common ones are planned profit pricing, GPMT, WTMWB, and digit pricing. Remember that prices aren’t linear, and you can use these different models at different times.
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