Setting the right price is not only critical for profits but also fundamental for a company to thrive and grow. However, when it comes to setting the price of their products, many small business owners are often inaccurate.
How much should you charge your customers? At least, you must know how much the product costs you. Here are some cost factors you should know before making pricing decisions:
- What are the direct labour and material costs?
- What are the overhead expenses that are fairly allocated to every product?
- What are the fixed costs and break-even production level?
- What is the cost of finding, keeping and growing a customer?
- What are the costs of the same products from the competitors?
Many small business owners just do not have adequate cost information due to lack of effective accounting system in place. To them, pricing is just merely a guessing game.
Next time, before you put the price tag on a product, ask yourself a question – “how much does this product actually cost me?” Decision must be based on real factors instead of emotion. When you make your business run by the numbers, your business will thrive and grow.
