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HINTS ON PRICING - Part III of III

© Barbara Massie

We continue our overview of pricing methods with another formula:

MATERIALS/SUPPLIES PLUS LABOR PLUS OVERHEAD = BASE

Use B (base figure from formula above) Add 100 percent markup to the base figure plus your desired profit margin.

Example:

If you have $12.50 in base in your product:

• Add 100 percent markup (now you have $25 as the base)

• Add desired profit margin (30 percent used for example) = $7.50

• The Total charge to customer will be $32.50

ALLOWANCE FOR "SALE" PRICING:

All items do not sell. Don't keep showing them, hoping they will sell, mark them down in price. Put the items on sale and try to at least get back what it cost to make them. Even if you have to sell them at less than cost, you will be turning them back into money.

Dispose of Slow Moving and Obsolete Inventory at the Business Resource Center gives insight into having the courage to cut losses. This can also be a lesson on pricing for you.

When marking down a price, you still want to show a profit. Make certain the price, if reduced as a sale item, will still recoup your costs and make a small profit. Price the item, then sit with paper and pencil - reduce the price first by 20 percent, or by 33 percent, then subtract the cost of the item. Does the sale price cover the cost of the item and leave you a small profit?

When pricing this way, the slow sellers can be reduced throughout the year because a markdown is figured into the price. Profit made will not be as high, but you won't be stuck with items that won't sell.

There isn't a way to predict what the ideal price will be. I have given hints and methods of pricing; you decide which is best for your business. The information for comparison in pricing is here; you must do the analysis.

You will be comfortable with some of the methods listed. You might feel a few of the hints have a tinge of being unethical, but that is business. Pricing is not all black and white; it can be grey. It also uses people's emotions. This has been described in the "Psychology of Pricing" and next in "Perceived Value Pricing."

"PERCEIVED VALUE" PRICING:

Perceived Value: The value a customer perceives an item will cost because of how it looks! You can place a "perceived value" price on an item that cost you 50 cents to make and looks like it would cost $5.00, at $4.95. A very profitable mark-up of $4.45.

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