1. Setting the Right Price

2. “Underpricing is one of the most common mistakes home-based businesses make.” SLIDE 1 Setting the Right Price

3. Realistic Prices Cover Costs Earn a Profit Attract Customers SLIDE 2 Setting the Right Price

4. Educated Guess or Orderly Analysis SLIDE 3 Setting the Right Price

5. Total Costs Direct Costs + Labor + Overhead SLIDE 4 Setting the Right Price

6. Direct Costs The costs of the materials and supplies related to the actual production of a product or service. SLIDE 5 Setting the Right Price

7. Labor Cost of services provided by workers for wages SLIDE 6 Setting the Right Price

8. Overhead All the costs of running a business that are not directly related to the actual production of a product or service SLIDE 7 Setting the Right Price

9. Overhead Expenses SLIDE 8 Advertising Business Permits Business-Related Travel Office Supplies Office Equipment Insurance Demonstration Materials Rent Utilities Taxes Other Business- Related Costs Equipment / Supplies Maintenance Equipment / Repairs Setting the Right Price

10. Overhead Percent Overhead Expenses _________________________________________________________ Direct Costs + Labor SLIDE 9 Setting the Right Price

11. Overhead Percent Example Direct Costs = $4,000 Labor = $6,000 Overhead = $2,000 SLIDE 10 Overhead Expenses _________________________________________________________ Direct Costs + Labor $2,000 _________________________________________________________ $10,000 ==.20 or 20% Setting the Right Price

12. Total Costs Direct Costs + Labor + Overhead SLIDE 11 Setting the Right Price

13. Total Cost Example Direct Costs = $5.00 Labor [2hrs @ $10 per hour] = $20.00 Overhead [@ 20% of $5.00 +20.00 ] = $5.00 SLIDE 12 Direct Costs + Labor + Overhead = $5 + $20 + $5 = $30 Setting the Right Price

14. Profit Income after all expenses have been paid SLIDE 13 Setting the Right Price

15. Price (Direct Costs + Labor + Overhead) + Profit SLIDE 14 Setting the Right Price

16. Factors to Consider When Setting Price Direct Costs Labor Overhead (20% - 25% of Direct Costs + Labor) Profit (10% - 20% of Total Costs) SLIDE 15 Setting the Right Price

17. 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 16 Direct Costs + Labor + Overhead + Profit = $5 + $20 + $5 + $3 = $33 Setting the Right Price

18. 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 17 Wholesale Price = $33 Retail Price [wholesale price x 2] = $66 Setting the Right Price

19. Break-Even Point The point at which sales (revenues) are exactly equal to costs (expenses). Sales = Variable Expenses + Fixed Expenses SLIDE 18 Setting the Right Price

20. Break-Even Point Example Sales = Variable Expenses + Fixed Expenses 1.00x =.45x + 275 1.00x -.45x = 275.55x = 275 x = 500 SLIDE 19 Setting the Right Price

21. Break-Even Point Example Sales = Variable Expenses + Fixed Expenses 1.00x =.45x +.20(1.00x) 1.00x -.45x = 275 +.20x 1.00x -.45x -.20x = 275.35x = 275 x = 786 SLIDE 20 Setting the Right Price

22. Psychological Aspects of Pricing SLIDE 21 Competition Discounts Estimates Exclusivity Location Odd Number Prestige Professionalism Setting the Right Price

23. Psychological Aspects of Pricing What the market will bear SLIDE 22 Expertise Inflation Itemizing Quality Seasonality Volume Setting the Right Price