Setting the Right Price

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Setting the Right Price. Setting the Right Price. “Underpricing is one of the most common mistakes home-based businesses make.”. Setting the Right Price. Realistic Prices Cover Costs Earn a Profit Attract Customers. Setting the Right Price. Educated Guess or Orderly Analysis. - PowerPoint PPT Presentation

Transcript of Setting the Right Price

  • Setting the Right Price

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  • Underpricing is one of the most common mistakes home-based businesses make.SLIDE *Setting the Right Price

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  • Realistic Prices

    Cover CostsEarn a ProfitAttract CustomersSLIDE *Setting the Right Price

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  • Educated GuessorOrderly AnalysisSLIDE *Setting the Right Price

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  • Total Costs Direct Costs + Labor + OverheadSLIDE *Setting the Right Price

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  • Direct Costs

    The costs of the materials and supplies related to the actual production of a product or service.SLIDE *Setting the Right Price

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  • Labor

    Cost of services provided by workers for wagesSLIDE *Setting the Right Price

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  • Overhead All the costs of running a business that are not directly related to the actual production of a product or serviceSLIDE *Setting the Right Price

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  • Overhead Expenses

    SLIDE *AdvertisingBusiness PermitsBusiness-Related TravelOffice Supplies Office EquipmentInsuranceDemonstration Materials

    RentUtilitiesTaxesOther Business-Related CostsEquipment / SuppliesMaintenance Equipment / RepairsSetting the Right Price

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  • Overhead Percent

    Overhead Expenses_________________________________________________________Direct Costs + LaborSLIDE *Setting the Right Price

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  • Overhead Percent Example Direct Costs = $4,000 Labor = $6,000 Overhead = $2,000 SLIDE *

    Overhead Expenses_________________________________________________________Direct Costs + Labor

    $2,000_________________________________________________________$10,000==.20 or 20%Setting the Right Price

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  • Total Costs

    Direct Costs + Labor + OverheadSLIDE *Setting the Right Price

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  • Total Cost Example Direct Costs = $5.00 Labor [2hrs @ $10 per hour] = $20.00 Overhead [@ 20% of $5.00 +20.00] = $5.00 SLIDE *Direct Costs + Labor + Overhead = $5 + $20 + $5 = $30Setting the Right Price

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  • Profit

    Income after all expenses have been paidSLIDE *Setting the Right Price

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  • Price

    (Direct Costs + Labor + Overhead) + ProfitSLIDE *Setting the Right Price

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  • Factors to Consider When Setting Price

    Direct CostsLaborOverhead (20% - 25% of Direct Costs + Labor)Profit (10% - 20% of Total Costs)SLIDE *Setting the Right Price

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  • Price Direct Costs = $5.00 Labor [2hrs @ $10 per hour] = $20.00 Overhead [@ 20% of $5.00 +20.00] = $5.00 Profit [@10% of $5.00 + $20 $5] = $3.00 SLIDE *Direct Costs + Labor + Overhead + Profit = $5 + $20 + $5 + $3 = $33Setting the Right Price

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  • Retail Price Direct Costs = $5.00 Labor [2hrs @ $10 per hour] = $20.00 Overhead [@ 20% of $5.00 +20.00] = $5.00 Profit [@10% of ($5.00 + $20 + $5)] = $3.00 SLIDE *Wholesale Price = $33 Retail Price [wholesale price x 2] = $66Setting the Right Price

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  • Break-Even Point

    The point at which sales (revenues) are exactly equal to costs (expenses). Sales = Variable Expenses + Fixed ExpensesSLIDE *Setting the Right Price

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  • Break-Even Point ExampleSales = Variable Expenses + Fixed Expenses 1.00x = .45x + 2751.00x - .45x = 275.55x = 275x = 500SLIDE *Setting the Right Price

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  • Break-Even Point ExampleSales = Variable Expenses + Fixed Expenses 1.00x = .45x + .20(1.00x)1.00x - .45x = 275 + .20x1.00x - .45x - .20x = 275.35x = 275x = 786SLIDE *Setting the Right Price

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  • Psychological Aspects of Pricing

    SLIDE *CompetitionDiscountsEstimatesExclusivity

    LocationOdd NumberPrestigeProfessionalismSetting the Right Price

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  • Psychological Aspects of Pricing

    What the market will bearSLIDE *ExpertiseInflationItemizingQualitySeasonalityVolumeSetting the Right Price

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