1. Objective 3.03: Demonstrate ways to compute client costs of goods and services.

2. There are many factors that affect pricing

3. Economic Factors
Supply: the amount of goods or services that producers are willing to provide
Demand: the amount of goods or services that buyers are willing to purchase.

4. Competition
How your competition is pricing their product or service may determine how YOU will price yours.

5. Costs and Expenses
In order to make a profit, your prices must be set to exceed your costs and expenses.

6. Pricing Strategies

7. Demand-based Pricing
Set your price according to what customers are willing to pay
Must have a good understanding of the consumer’s perception of the product or service.

8. Competition-based Pricing
Determine your competitor’s pricing. Then:
Price below the competition
Price above the competition
Price in line the with competition.

9. One-Price Policy
All customers pay the same price.

10. Psychological Pricing – price is based on the customer’s perception
Prestige pricing: higher than average price to suggest exclusiveness, status, prestige.

11. Psychological Pricing cont.
Odd/Even pricing
Odd prices suggest bargains – 4.99
Even pricing suggest higher quality – 5.00.

12. Discount Pricing – reductions from the usual price of a product or service
Cash discounts: encourage prompt payment
Quantity discounts: offered to buyers for placing large orders
Promotional discounts: offered to sellers who are willing to promote a product or service
Seasonal discounts: offered to buyers who are willing to buy in advance of customary buying season.

13. Markup
Amount added to the cost of an item to cover expenses and ensure profit
Markup can be based on:
A standard percentage the business needs per item to cover expenses
The markup of competitors
The average markup for the industry.

14. Formulas for Calculating Cost, Retail, Markup, and Markup Percentage
Markup / Cost = Percentage of Markup
$5.00 / $15.00 = 33%
Retail - Markup = Cost
$ $5.00 = $10.00
Cost + Markup = Retail Price
$ $15.00 = $40.00
Cost x Markup % = $ Markup
$10.00 X 150% = $15.00