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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_________________________________________________________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 *

\$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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