How to Calculate The Price of Your Product?
Many have the idea of selling a specific product that is in high demand and sells like hotcakes. The question that usually arises is what price to choose to make it profitable, especially when it comes to innovative ideas whose prices we cannot know beforehand since there is no competition yet.
In today’s article, we are going to see an easy formula that can be applied to calculate this price.
First of all, you must be clear about the cost calculations of your own company. That is, if you have premises, how much do you pay for rent, costs for purchasing the product, personnel costs if you have workers, etc.
The second equally important thing is that you do a little research on how many units of a product you hope to sell. The ideal would be to “go out on the street” and ask those who you think may be users of this product and find out if they would buy it.
What interests you most is knowing what price you have to put on your new product to have a particular benefit. Well, you need to have the following things clear:
1. Desired benefit (B)
It is what you want to get out of the product. If, for example, you have invested € 10,000 in the development and launch of the product, you might want to obtain a 120% profit, that is, B = € 12,000.
2. Fixed costs of the company (FC)
The costs that you will have, even if you do not produce anything. For example, for the rental of premises, machinery, etc. In our example, we will have FC = € 20,000.
3. Variable cost of each product (VC)
It is what it costs you to produce each unit of product. For example, for packaging, transport, raw materials, it can cost you € 10 each unit.
4. The units you hope to sell (units)
You can get a rough idea of this number through surveys and market research. For example, you may be selling 1,000 units.
Thus, the price of the product would be the result of applying this formula:
In our example, the price to select for the product is € 42. By putting this price on your product, you will reach the profit figure specified above.