Chapter 7: Pricing
How much you should charge for your products or services is as much a marketing question as it is a financial one. If you have completed the “Marketing” book, then you have already developed a Pricing Strategy from a marketing perspective. Here we'll take a closer look at your financial considerations.
When you produce something of value, it is the marketplace that ultimately determines what it is worth. Charge too much and people will not buy, charge too little and you won't make enough profit. There is more to it than that, however.
You may purposefully sell a product at or near cost to get people to come into your place of business. Some lawyers, for example, will incorporate your business for a discounted rate, in the hopes of turning you into a long-term client.
You may offer quantity discounts or discounts for repeat business. Once a customer has purchased a dozen loaves of bread at a bakery, for example, he gets the next one free.
Or you may sell one product for a minimal profit because it will lead to further sales with a higher profit.
A computer store, for example, makes a larger profit from ink cartridges than from the printers they are made for.
The many variables make it difficult to develop one simple pricing formula for every product or service in every business, but you can get pretty close. After that, it's a combination of common sense, experimentation, and research.