How Much Should You Charge?

Consider these factors before pricing your product or service.

Before you can set a price for your product or service, you haveto determine the costs involved in running your business. If theprice you set for your product or service doesn't cover yourcosts, you will have to infuse more cash into the business untilyour resources are depleted and your business fails.

Exactly how much should you charge so you don't ruin yourbusiness? You must add fixed costs--equipment leases, loanrepayments, management costs (such as salaried employees) anddepreciation--to the variable costs of raw materials, inventory,utilities and hourly wages/commissions. You must also calculate thecosts generated by markdowns, shortages, damaged merchandise,employee discounts, costs of goods sold and desired profits, andthen add them to the operating expenses listed above. You can thenarrive at an initial price for your product.

The most important aspect of cost vs. price--a factor that youmust grasp if you are to learn how to price correctly--is that,ultimately, the market dictates the price you may charge for yourproduct or service. Your costs of providing customers and clientswith that product or service simply establish a minimum orbreak-even figure and the maximum price you could demand (and get)for your product or service.

Excerpted from 303 Marketing Tips: Guaranteed To Boost YourBusiness

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