To price your product or service accurately, you must calculate your costs. Here's how:
1. Add up all costs.Fixed costs are constant no matter how much or how little you sell; they include rent, property taxes, insurance, advertising, depreciation and interest on loans. Variable costs fluctuate based on the amount you sell; they include labor, sales commission, office supplies and sales tax. Semivariable costs include telephone, electricity and postage.
2. Determine your break-even point.
BP = VC + FC + SC (break-even point equals variable costs plus fixed costs plus semivariable costs)
Example: If variable costs = $1,000, fixed costs = $1,000, and semivariable costs = $1,000, then break-even point = $3,000.
3. Calculate your cost per unit (products) or per hour
P = TC+M/N
Price equals total costs plus markup divided by number of units you expect to sell or hours it will take to complete a project
Example 1: total costs = $3,000; markup = 50% ($1,500); number of units = 10,000; price per unit = 45 cents.
Example 2: total costs = $3,000; markup = 50% ($1,500); number of hours to complete a project = 50; price (hourly rate) = $90
(Note: If market research indicates consumers won't pay this price, you have to cut costs, and/or reduce your markup, and/or increase the number of units you sell or reduce the time it takes to complete a project.)
Andi Axman, (603) 736-8056, email@example.com
Huckleberry Mountain Co., P.O. Box 15270, Jackson Hole, WY 83002, fax: (307) 739-9355
Posh Impressions, (800) 421-POSH, http://www.poshimpressions.com
Quick Tax & Accounting Service, fax: (314) 631-6722.