How to Price Your Product

Setting the right price for your product or service is a delicate situation. You must find a price that will reflect your production costs as well as the value your customers place on your product.

Difficulty: Moderate

Instructions

Things You'll Need:

• Calculators
• Accountants
• Patent Marketing Services
• Calculators

1. Consider your production costs. These costs consist of both the fixed and variable expenses to manufacture or offer your product or service. Fixed costs include rent, salaries, property taxes - any expense that doesn't change often. Variable costs fluctuate depending on the amount of goods produced or services provided. They include raw materials, hourly wages and sales commissions.

2. Analyze your market. How much are customers willing to pay for your product? Conduct market research to test your pricing strategy. See what competitors are charging. You may price your product higher than the norm if you offer better service than your competitors.

3. Evaluate your product's uniqueness. See how closely your product resembles a competing product. Consumers will be reluctant to pay higher prices for your product if they can pay less for a competing brand.

4. Determine your product's price elasticity. Your product's elasticity is determined by whether price changes result in changes in demand. For example, if slight changes in price results in significant changes in demand, your product is considered to be elastic. However, if there is little change in demand even with significant price changes, your product is inelastic. The greater the price elasticity, the closer you should price your products to your competitors' products.

5. Set a price. Take all these factors into consideration before making a decision.

Tips & Warnings

• Ask trade or business associations for information on typical pricing strategies or average profit margins in your industry.
• Use your pricing scheme to create a product image. If you price much lower than competitors, consumers may think that your product is priced less because it is inferior.
• Vary your pricing. You may change your pricing, depending on your goals. For example, you might charge a lower introductory price for a short period of time to attract a large number of new customers.
• If in doubt, price on the high side. It's always easier to discount prices than to raise them.
• Beware of undercharging. Lowering your price far below that of competitors will create the wrong image for your product. Small businesses cannot afford to undercharge because they often cannot produce enough units to qualify for volume discounts. Therefore, their take of each sale is slim.

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on 11/22/2005 If you're not a real business (yet), but just do "favors" you want to get paid for, ask yourself how unique you are. Everybody can mow the lawn, but can everybody build a computer or install software? And do people want to do this, or would they rather save themselves time by using your services? If so, don't hesitate to ask for money. Think of a fixed price you feel good about in advance, and stick with it. Either take a percentage of the material costs, or take an hourly wage. Don't price your services too low, or that will make you look unprofessional.