Are You Charging Enough for Your Product?
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Are You Charging Enough for Your Product?

By In Blog On January 31, 2017

One dilemma a business owner has involved pricing for products or services. You want to have a good price to try to compete within your market niche, but you still need to make money. After all, every business exists to make money.

However, how you go about earning profits is the difference that sets firms apart from one another. Here are some facets to consider as you try to determine the best price for your products services.

Know the Difference Between Cheap and Value

First, you have to recognize the difference between cheap and value. Cheap means you charge less than anyone else no matter what. This strategy can run your business into the ground very quickly as you rush to cover your overhead.

Value shows your potential customers that they get a better product for the price. What do you provide that other companies don’t? That’s the $64,000 question when you add value to your pricing.

Adding value can come in several forms. For example, your competitor sells a product for $10 each. With that product, the customer gets a 30-day return policy, 90-day warranty and discounted repairs. You can add value to your product by selling the same type of item for $10.50, but you have a 90-day return policy, one-year warranty and the best customer service department in the industry.

Even though your product costs more, you have more value than the other guys. That’s how you drive the point home that customers get more for their money.

Calculate Your Break-Even Point

The key to turning a profit based on your business strategy is to find your break-even point and then add how much profit you want. Do you want to make 10 percent profit or 30 percent? Do you have enough to cover your own personal expenses at home, such as a house, utilities, car payment and food?

The break-even point occurs when you add up all of your overhead costs. Overhead costs range from labor and shipping to building rent and utilities. Don’t forget the raw materials you need for your product, and how much it costs to make each one. Let’s suppose your break-even point is $5,000 per month.

Your base product that you sell costs $10.50 each. How many do you need to sell each month to break even? You need to sell 477 to reach $5008.50 in one month. Anything over that total is profit.

Does your marketing strategy include enough sales leads to reach that point and beyond? Although these calculations are oversimplified, these are the things you need to think about when making a price. If you can’t sell 477 units in one month, you may have to raise the price to break even. If you find you sell twice that number, consider lowering your price to see if you can sell even more.

Seek Expert Help

The experts at HD Davis CPAs can help create a business strategy for your business. Our staffers can look over your baseline expenses, examine your business model and make suggestions for improvement. HD Davis CPAs can help you find the optimal price for your products or services based on market research and your own numbers.

The more data you have, the better, because part of HD Davis’s services involve crunching numbers. That’s what we do best, and then make conclusions based on what we calculate.

Contact HD Davis today and see what we can do for your business!

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