Pricing is one of the most challenging aspects of business.  When pricing your service or product, you must determine your variable (i.e. raw materials) and fixed (i.e. plant and equipment) costs in addition to your desired profit margin.  Pricing is also important in determining your product’s position in the market and the market segment you are targeting.  You must consider how similar products are priced by your competitors.    

There are many additional factors to consider in determining pricing for your product or service, such as; Do you have a desired level of markup from your costs?  If this business has resellers, what is their typical markup?  Is this business covering it’s costs? 

The following is a list of some additional factors to consider:

*   To achieve a certain percentage of your sales or investment consistent with your target objectives and marketing plan.

*   The cost of the product itself.

*   Your total sales capacity (based on inventory, personnel, etc.)

*   Substitutability of other products.

*   Amount of competition and competitor pricing strategies.

*   Projected market size.

*   Customer profile (loyalty, price sensitivity, etc.)

*   Payment terms and policies (cash v. credit, terms, etc.)

*   External environmental changes (size of market, new entrants, etc.)

When you determine your price structure, be sure to consider the above factors and revisit your pricing system often.