Gateway Commercial Finance

Setting the Best Price for Your Products or Services

How to set prices

The price of your product depends on three variables. First, the cost of your product will define how much you need to charge to make a profit; second, your competition will affect how much you can charge your customers; third, the uniqueness of your product will determine how much more you can charge than your competition.

Knowing your costs

Your production costs help determine the minimum amount you need to charge for your product. Production costs are typically variable costs. That is, they vary depending on how much product or service you are manufacturing or delivering. They include the amount of space required for production activities, the number of employees hired to meet the demand for the product, and other costs such as shipping and packing material. You will learn more about this in Section Business Costs and Expenses.

Types of Receivables Financing Options

All things being equal, your competition will drive your pricing strategy. You have choices regarding where you want to be in the market. Some business people are content to run a moderately profitable business by undercutting the competition and selling cheaply made products. Others prefer to sell high-end products to a smaller group of customers who want the best available product and are willing to pay a premium.

Apple, for example, sells its computers for three or more times what the competition sells its products. Apple is unique since it runs on a different operating system and markets its uniqueness. However, Apple and its competitors provide products that essentially do the same thing—offer Internet applications and run similar software. You must decide where you fit in the mix and then execute a plan to drive your company‘s future.

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