I wanted to know the formula of pricing products?

Question

i wanted to start a business at home (edible arrangement type) but i dnt have any idea on how much should i charge per finished product. Does anybody knows of any formula? I

Answer 1

Your goal should always be for a 40 to 50 percent mark up.

Answer 2

there are enough pricing methods out there. A simple one is mark-up pricing, where you add a certain percentage over the cost of production. Let say you bought ingredients for 100 dollars and made soup from them then ignoring cost that you cannot allocate to a specific product. So the cost f producing the soup is 100 dollars plus 3 dollars (water,electricity,etc) is 103 dollars. You quantity you produce is 25 liters of soup per example. Lets assume that you want a mark-up that is higher than you savings account interest rate otherwise you would not produce, take 20% as a mark-up. The price of your soup should be 123.6 dollars that translates to 4.94 dollars which is 5 dollars per liter of soup. Be careful here in case you will need to transport your soup you will need to charge for transport as an added charge you will need to work that though since you did not ask here.

Look also for Activity based costing, full cost, cost plus etc

Answer 3

The other answers given so far focus on the cost of producing an item. Unfortunately, your customers don't care about your costs. Look at it from their perspective. Your product offers them some benefit, and there is a theoretical maximum price they would pay for it. Maybe you can produce it for less than that and earn a profit or maybe it costs you more and you take a loss.

The customer only cares what it will cost him out of pocket and whether he will derive enough value from the purchase to make the transaction worthwhile. On the other hand, there are competitors and even substitute products that can drive down the price a customer is willing to pay below the theoretical maximum. If, for example, a shrimp platter sells for $15 at a nearby store, it's unlikely someone is going to buy one from you for $25.

You should begin by getting to know the market well. What do customers buy, who do they buy from, and what do they typically pay? What matters most to them? Is it low price, great taste, convenience, fast turnaround on orders?

Researching the market isn't that difficult. Look around at delis and supermarkets. Call caterers and ask for price quotes. Interview likely customers and ask them what they would expect to pay for a platter or basket.

People are seldom willing to pay a premium, unless they perceive additional benefits. You might be able to charge above the market rate if you use better ingredients, make a nicer presentation, offer delivery, etc. It doesn't help unless customers understand that they are getting more value in the bargain and are willing to pay for it.

Of course, costs are extremely relevant to you, which is why you first have to make sure that you can sell products for more than it costs you to produce them, and that you can sell enough units every month to cover any fixed overhead costs. You wouldn't go into business unless you could earn a profit, right?

The point is that "cost-plus" pricing is a bad practice, because you either end up charging too much for an item or you leave money on the table. Focus on what people are willing to pay and then design your business model around that. This approach helps you earn the full value of what you provide to customers while keeping your costs below expected prices.

Answer 4

ok heres what i heard.. by the time a product is in a retail store the retail price of that product is (8 X production cost)

when I buy parts and resell them i mark them up 10% to 20% on that part.

some times you can even markthem up more depending on what the other people are selling them for.

note this: the more expencive the item is the more people will belive its better then the cheaper ones next to it.