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Published byHarvey Montgomery Modified over 9 years ago
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Setting the Right Price
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“Underpricing is one of the most common mistakes home-based businesses make.” SLIDE 1 Setting the Right Price
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Realistic Prices Cover Costs Earn a Profit Attract Customers SLIDE 2 Setting the Right Price
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Educated Guess or Orderly Analysis SLIDE 3 Setting the Right Price
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Total Costs Direct Costs + Labor + Overhead SLIDE 4 Setting the Right Price
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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
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Labor Cost of services provided by workers for wages SLIDE 6 Setting the Right Price
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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
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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
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Overhead Percent Overhead Expenses _________________________________________________________ Direct Costs + Labor SLIDE 9 Setting the Right Price
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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
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Total Costs Direct Costs + Labor + Overhead SLIDE 11 Setting the Right Price
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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
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Profit Income after all expenses have been paid SLIDE 13 Setting the Right Price
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Price (Direct Costs + Labor + Overhead) + Profit SLIDE 14 Setting the Right Price
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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
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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
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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
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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
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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
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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
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Psychological Aspects of Pricing SLIDE 21 Competition Discounts Estimates Exclusivity Location Odd Number Prestige Professionalism Setting the Right Price
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Psychological Aspects of Pricing What the market will bear SLIDE 22 Expertise Inflation Itemizing Quality Seasonality Volume Setting the Right Price
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