Pricing

Your minimum price must cover both you variable expenses, such as the costs of buying raw materials, and utilities. Some companies have a standard guideline, for example a product's price must be twice the cost of buying or manufacturing it, in order to cover fixed expenses. I prefer to calculate a minimum price with the following formulas:

First calculate the net profit per unit you need to cover fixed and administrative costs:

Net Profit per Unit = (Fixed + Admin. Costs) / Unit Sales

Then use the minimum price formula:

Minimum Price = Net Profit per Unit + Cost of Buying or

Manufacturing per Unit + cost of Marketing and Sales of Marketing and Sales per Unit.

What is Your Selling Proposition?

Examples of selling propositions are: buy Coke because it tastes great. Buy Pepsi because it beats Coke in taste tests and is the "taste of a new generation." Buy Sony products because of their high quality. Buy a Camaro because it has a sports car look. Buy an IBM computer because it offers extensive product support.

A proposition can be feature oriented: buy a Chevette and get good gas mileage. A proposition can be service oriented: buy from Sears because they will accept any return. Or a proposition can be image oriented: buy a BMW because it's the Yuppie car. The important point is that your product has a selling proposition and that it's compelling enough to induce customers to buy your product. If your selling proposition is not strong, develop a new one. Often a selling proposition is all that a customer will remember about a product. You want to be sure that your proposition is significant enough that the customers think it's worth remembering.