Several aspects of business and marketing dictate how prices need to be set in order for a company or retailer to be successful and reflect their objectives.
Firstly, the amount of time that it takes to make a product (and thus the hourly rate of the person who has made it, if applicable) needs to be considered so that the producer is paid fairly. The cost of materials also needs to be taken into account so that the business does not lose money. On top of this, a company’s aim is usually not just to break even but to make a secure profit. Deciding how much needs to be charged in order to achieve this is likely to be decided on the basis of previous patterns and future projections rather than being decided arbitrarily and will vary depending on the organisation’s size and output.
Ideally, when starting out with a new product as an unestablished or unfamiliar company, your prices need to be high: This sets a standard, and for technology companies in particular, ‘geeks’ or early adopters will be drawn in despite or even because of the high price tag. As more and more people begin to purchase the product, however, prices should become lower and more competitive: If your product is an innovative one, other similar products may soon begin to appear on the market, and you need to be able to compete with them, continuing to draw in new customers at the same time.
However, your product and company ideals should not be compromised: If, as mentioned, you are trying to set a certain standard or attract a certain class of customer, your price should reflect this. Plus, you still need to continue making a profit. If your profit is based on the cost price, this is known as ‘mark up’ and can be calculated by taking the cost price away from the selling price, dividing this number by the cost price, and then multiplying by 100. If your profit is based on the sale price, this is known as ‘margin’ and can be calculated by taking the cost price away from the selling price, dividing this number by the selling price, and then multiplying by 100.
Firstly, the amount of time that it takes to make a product (and thus the hourly rate of the person who has made it, if applicable) needs to be considered so that the producer is paid fairly. The cost of materials also needs to be taken into account so that the business does not lose money. On top of this, a company’s aim is usually not just to break even but to make a secure profit. Deciding how much needs to be charged in order to achieve this is likely to be decided on the basis of previous patterns and future projections rather than being decided arbitrarily and will vary depending on the organisation’s size and output.
Ideally, when starting out with a new product as an unestablished or unfamiliar company, your prices need to be high: This sets a standard, and for technology companies in particular, ‘geeks’ or early adopters will be drawn in despite or even because of the high price tag. As more and more people begin to purchase the product, however, prices should become lower and more competitive: If your product is an innovative one, other similar products may soon begin to appear on the market, and you need to be able to compete with them, continuing to draw in new customers at the same time.
However, your product and company ideals should not be compromised: If, as mentioned, you are trying to set a certain standard or attract a certain class of customer, your price should reflect this. Plus, you still need to continue making a profit. If your profit is based on the cost price, this is known as ‘mark up’ and can be calculated by taking the cost price away from the selling price, dividing this number by the cost price, and then multiplying by 100. If your profit is based on the sale price, this is known as ‘margin’ and can be calculated by taking the cost price away from the selling price, dividing this number by the selling price, and then multiplying by 100.
