To find the price of a product, make a so-called "full cost estimate". In other words, take into account all the costs required to produce one unit of output and add the desired markup to them. Compare the resulting amount with the cost of similar products or services on the market in your region. If your price is higher, you need to reduce either the cost price or the margin.
It is necessary
- -Product;
- -Full cost estimate;
- -Research of competition.
Instructions
Step 1
Calculate the cost of production. The full costing method implies the need to take into account not only direct costs (for example, the cost of raw materials and works), but also indirect ones. These may include: the cost of delivery, the electricity spent on processing, the remuneration of technical personnel who are not directly involved in production, etc.
Step 2
Add a markup. Its value depends on several things, and in different sectors of the economy it can be quite different. For example, in the food trade, the average store markup is 30-35 percent, but a restaurant business operating on the same products will not be profitable if the markup is below 250 percent. Also, the size of the margin is influenced by the geographic region - in particular, the purchasing power of the population. The higher the salaries of residents of a city, the higher the margin may be. Another important factor is competition.
Step 3
Analyze competitors' prices for a similar product or service. If your amount is higher, decide how they can afford to sell for less. Perhaps the point is that they have other suppliers whose products have a lower cost? Or is the staffing table more correct? Or lower wages for staff? Or maybe they use not very high quality raw materials? There can be dozens of reasons, you cannot do without a thorough marketing research in this matter.
Step 4
Reduce your cost. It is not necessary to do this by switching to low quality raw materials. It is possible to introduce a new automation system and reduce the staff of accountants. Also, an effective way to reduce costs is to revise the work shift schedule. For some cases, energy-saving technologies and more rational use of warehouse space will bring significant reductions.
