Factors to Consider When Pricing for Profits

Individual wooden letters spelling out PricingHow should you price your products? Should you rate according to competition, or should you factor in materials, labor, and profit? Do you think selling your products lower will help you sell more?

Pricing is one of the toughest decisions to make in business. One rule of thumb is that you neither set your prices too high nor too low. Factoring in these three things should guide you into pricing for profits


When researching competition, don’t just look at the prices on their websites. Do some digging using price tracking tools to get the actual prices. Ideally, you want to rise competitively, but you also want your prices to reflect the value of your products.

Looking at the competitor’s customers reviews will help you tell if your product offers more value. If it does, then that means your product is superior, so don’t price lower than your competitor.

Your costs

Costs include all the money spent developing the product or service. Calculate the variable costs, including costs of materials and packaging. The more your products, the higher the costs. Then, calculate the overhead costs which include your rent, wages, and rates.

Finally, divide the total of this cost and divide the volume of products to get a break-even figure.  To gain profit, you shouldn’t price lower than the break-even figure. To make profit, you add a margin to the break-even point

Market Turbulence

Prices don’t stay fixed for long. Your costs, competition, and customers can change. This will force you to change prices to keep up with the market. As you price, don’t price too low in such a way that you can’t lower it if the need arises.

Always remember that optimum pricing factors in your costs and maximizes your profit margins while remaining attractive to buyers. Keep in mind; pricing communicates the worth of your products so underpricing may lead to lower sales.