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Production Costs | Pricing Strategies | Pricing Tips | Pricing Resources
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Cost-Based Pricing
The price would cover the cost of manufacturing your product plus the
fixed overhead, plus a profit. In cost based pricing, you would take your
costs and add on a profit to determine your price.
Competition-Based Pricing
The price range set by your competition is the range your customers will
expect. You can get this information by preparing a profile of your competition
and determining the prices they charge for products similar to yours.
You can use this as a guide to set your prices. You can set your price
the same as your competitors or you can set a price that is lower to lure
customers away, but make sure you are still covering your costs of production
and overhead.
Customer-Based Pricing
How much is your customer willing to pay for your product? You need to
know your customer’s attitudes and values toward prices, product
quality, value, and prestige. Some customers believe a higher price means
higher quality. Bargain hunters are happy with lower prices. You want
your price to reflect your product image.
Break-Even Pricing
The break-even price will tell you the minimum quantity you need to produce
and sell in order to break even – the point where there are no profits
or losses. To calculate your break-even point, you need your variable
costs, fixed costs, and volume.
You can use this calculation to determine if you have the capacity to
produce and sell the volume required just to break-even. Running a sensitivity
analysis by varying the volume, sales price and overhead costs, will assist
you in determining:
- sales in units and dollars required to break even
- costs to produce a specific volume
- costs, volumes, and sales to achieve a profit target
