How Much Should You Charge?

“One of the most difficult, yet important, issues you must decide as an entrepreneur is how much to charge for your product or service. While there is no one single right way to determine your pricing strategy, fortunately there are some guidelines that will help you with your decision.”

This article from About.com reviews both pricing strategy and specific pricing methods you can use to calculate your optimum pricing, and explains four ways to calculate prices:

• Cost-plus pricing – Set the price at your production cost, including both cost of goods and fixed costs at your current volume, plus a certain profit margin…
• Target return pricing – Set your price to achieve a target return-on-investment (ROI)…
• Value-based pricing - Price your product based on the value it creates for the customer. This is usually the most profitable form of pricing, if you can achieve it…
• Psychological pricing – Ultimately, you must take into consideration the consumer’s perception of your price, figuring things like:

  -Positioning – If you want to be the “low-cost leader”, you must be priced lower than your competition. If you want to signal high quality, you should probably be priced higher than most of your competition.

  -Popular price points – There are certain “price points” (specific prices) at which people become much more willing to buy a certain type of product…

  -Fair pricing – Sometimes it simply doesn’t matter what the value of the product is, even if you don’t have any direct competition. There is simply a limit to what consumers perceive as ‘fair’…”

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