Every firm manufactures goods or renders services with the view to earn some profit. Profit is the surplus that remains after deducting the actual cost from the selling price.
With competition on the rise, business houses have to constantly evaluate their pricing policy not only to recover production cost but also to provide good value for money to their customers.
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.
Given here some instructions to help you decide on the price for your product:
Step 1 – Calculate total production cost incurred in manufacturing one unit of your product by adding up fixed and variable costs. In general total cost tends to decline with increase in production because of proportionate decrease in fixed cost with every additional unit so produced.
Step 2 – Analyze your consumer market. Go through the demography of the consumers, update your knowledge regarding current market trends and try to understand your competitor’s marketing strategies. These factors would give a fair idea of the fair price that could be safely quoted for your product.
Step 3 – Determine the USP of your merchandise. Also look at the similar competitor substitutes that lie at the disposal of the consumers. Any further increase in your product price would impel them to substitute your good for your contemporaries.
Step 4- Ascertain the elasticity of your goods. Elasticity may be defined as the degree of responsiveness of change in demand to change in price. If the product is highly elastic, you need to stabilize restrict the price similar to that of your competitors.
Step 5 – Gather all the information and fix the price in accordance with the data available with you.