Small Business Start-Up Checklist – Setting a Price

Deciding upon the price of your goods or services is definitely one of the most important decisions you will make at the start-up of your small business. It will be essential that you sell at a price which is attractive to your target market or else you will really struggle. You must also make sure that the price you decide upon is adequate enough to cover the combined total of all the costs you incur (e.g. production and labour) or else you will lose money over the long-term.  

Things to remember:  

  • The first step in deciding upon a price is calculating your break-even point – this is the price at which you would not lose or make money when selling your product
  • Conduct a break-even analysis to work out your fixed costs (figures that will not change greatly such as rent, insurance etc.) and variable costs (figures that will vary based on output, such as having to pay extra wages to staff for the additional hours needed to finish a big order on time)
  • Use this method to work out the minimum price you can charge without losing money on a sale
  • Sometimes businesses sell products at below the break-even point for a short while in order to damage competitors
  • With products that cost a large amount of money to develop and bring to market, the common practice is to charge very highly for them initially to re-coup the development cost whilst demand is high
  • Some business owners (such as venture capitalists) may have a desired return on investment and will price their products accordingly to reach that profit level
  • Use what your competitors charge for their products or services as a rough guide
  • Be prepared to lower prices or offer discounts as part of your marketing efforts
  • If you are selling a product with high perceived value such as luxury goods then your target market will be prepared to pay over the odds for it because they are purchasing a status symbol – this is known as the “price the market will bear”
  • You can raise the perceived value of your company over an extended period of time by excelling in various aspects of your business, from the packaging of your product through to the attitude of your salespeople

In general, the best price for your product or service will fall somewhere between the break-even point and the price the market will bear  

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