This was scanned from an old small business book I had from ATT.
Sorry for the formating.
Guidelines on Determining Prices for Products and Services
Price setting is where a new business owner's insecurities surface. Most entrepreneurs set their prices too low. Worried about making sales, some entrepreneurs set their prices according to what their competitors are charging, some add a mere "reasonable" profit to costs and some cut prices nearly to the bone in the hope of attracting a great volume of sales.
None of these are methods for a new business owner to emulate for two critical reasons:
because setting prices too low may cause customers to assume your products are inferior to the competition; and
because you may not be able to survive long enough to compete with more established business that are in a position to set their prices low.
How, then, should you go about determining the right price for your products and services?
• First, determine your costs.
• Second, choose a pricing strategy. • Third, convince yourself to act with confidence, patience and pride and aim high because when you set a price, you also set an image for your company.
Determining Costs and Price To estimate costs, you need to tally three factors:
• material costs, such as parts and supplies;
• labor costs, which should include hourly wages plus benefits; and
• overhead costs, or the indirect costs of everything else, such as clerical and janitorial expenses, taxes, depreciation and so on.
To estimate pricing, or costs plus profit, you have three pricing strategies to choose from.
Comparable pricing
Setting a price close to your competitor's price works only when both firms are established. When you are the new business on the block, comparable pricing will not give your competitor's customers any reason to switch to you.
Low pricing
As discussed above, in most cases, this is a fatal mistake.
High pricing
The best option for a new small busness, high pricing reflects an image of quality, distinguishes you from your competitor and helps you recover start-up costs quickly.
Two other options
Another way to price your products is by what is referred to as good-better-best pricing. This gives customers choices within the same product line. One offers the best price, one the best value and one the best quality.
You also might consider promotional -pricing, by setting one price below cost to attract sales of other goods; or discounted pricing, such "2/10, net 30," which gives customers
a 2 percent discount if they pay within 10 days and, otherwise, requires them to pay the full amount within 30 days.
But whatever you do, aim high. You can always drop a price and win customers. It's far more difficult to raise a price and keep them.
