Tips for Determining the Selling Price of a Product

Basically the selling price of a product is the final amount or nominal charged by a business to its consumers. Therefore, business people need to set the nominal price, before the product is accepted by consumers.

In determining the selling price of a product, business people need to have clear benchmarks, so that they can set the right and profitable price. Determination of product prices can be determined from the calculation of costs that become business capital.

Product Pricing Factors

Several factors can influence the determination of a product's selling price, including:

• Fixed cost (Fixed Costs)

Fixed costs are business costs whose amount is not determined by the volume of company activities. Fixed costs include employee salaries, building rent, machine maintenance, electricity bills, and so on.

• Variable Cost (Variable Costs)

Variable costs are business costs whose amount is in accordance with the volume of business activities. Costs that are included in variable costs, such as raw material costs, employee overtime wages and so on.

Method of Calculating Product Selling Price

Apart from the above factors, the determination of the selling price of the product can also be determined through various calculation methods, as follows:

• Cost-Plus Pricing

The determination of the selling price using the cost-plus pricing method is determined by adding up the total production cost per number of products, after that add the profit margin according to what you want to get. The calculation formula is:

Selling Price = Estimated Full Cost + Desired Profit

• Mark Up Pricing

The next method is mark-up pricing, where the calculation is by adding capital or the purchase price of the product with the profit to be obtained. The calculation formula is:

Selling Price = Product Purchase Price + Mark Up

• Break Even Pricing

Calculation method with break even pricing namely by prioritizing production costs and also market demand to determine the selling price of the product. The calculation formula is:

Selling Price = (Fixed Cost + Variable Cost) / Quantity

• Keystone Pricing

Determination of the selling price of the product with this method does not use a special formula. The calculation method is only to increase the price of the product using an initial markup of 50% to 100% of production costs.

• Manufacturer Suggested Retail Price (MSRP)

This method does not require calculation because the cost of goods has been determined by the association of business people in the same or equivalent industry. Usually, it is carried out by the manufacturing industry that makes motor vehicles, electronic products, and other products.

• Market Based Pricing

This pricing method based on market prices is almost similar to the MSRP method. the difference, market-based pricing determined naturally in the market, not based on the agreement of a particular association. It is enough for business people to follow the general price in the market.

• Value Based Pricing

Determining product prices with this method is relatively more difficult than other methods. This is because the price of the product is determined based on the value of the product, like a distinctive value that other products do not have. Generally, this method is used to determine antique collection products such as works of art.