6 How to Setting Price A Product (Part 1)

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We must set an appropriate price for our product. This is important because after we produce and package the good product, we must set the right price acceptable to consumers and we get the benefit of our sales. There are at least 6 ways to set the price that we can choose. There are still other ways, but the most common is 6 in the following ways,

1.  Setting selling price by production cost

Setting selling price by production cost means setting selling price will we wear for the product depends on how much cost we incur in producing or getting  product. If it is to produce a dozen shoes, we suppose  production cost $ 100 and we want get profit $ 50,  sale price we got from production costs and profit that we want, so the selling price of $ 150.

This way pricing is very simple and most often used by people who are just starting a business like me. Many sellers who do not want to be bothered in determining the price of a good or service, then the way is then their choice.

But there is one obstacle in this type of pricing, which is needed flair to get the price calculation that actually correct. Because, in fact we know the overhead cost that we often ignore.

Overhead costs are all costs incurred for procurement of a product. But this cost is not included in production cost. Quite hard to explain, though more easily let's give an example. Suppose we are importer of vegetables from Indonesia. Often, We just calculate price of product and transportation costs from Indonesia up to our place. This is the cost of production. As for the Overhead Cost suppose percentage shrinkage of vegetables during the trip, parking fees, cost of transport workers in the port or maybe even a customs officer costs.

2. Mark Up based on Selling Price Determination

If we set selling price of goods or services based on mark up, we no longer need to calculate in detail all cost components for manufacture or procurement of the goods. Of course still be calculated but in the form of estimates, so no details. How about overhead costs was worried in setting prices based on production cost? This time we can ignore it.

We need to do is determine profit margins that we want to get. For example, if production cost $ 100 for a machine. We want to earn 20%  as profit margin, so selling price of these machines is $ 120. That’s simple, right?

It's almost same as determinate selling price based on production cost, but a benchmark here is profit margin that we want to get and usually a percentage like 10%, 30% or 50%.

My experience, bank officers who conduct surveys typically ask about how much turnover we get monthly. Then he'll ask how much profit margin that we set. So bank usually use this method to estimate profits of  his client company.

3. Selling Price Determination Following Market Trends

Selling Price Determination Following Market Trends often referred to as setting prices based on competitors. For certain items such as daily basic goods sometimes we are confused in setting the selling price? We do know cost production of goods, but we are not free to determine the selling price as in determining selling price based on production cost and selling price determination based on margin that I have written before. This is because consumers already know prices general of goods in market.


Generally applies to retail businesses, they try to grab consumers by selling goods at prices cheaper than general price are known consumer on market. Other techniques that look more cheap, they often use a little touch of psychology by reducing digits number of price. And if we are careful, the difference is just a little. For example, the general price is $ 100 then set to be $ 99. It’s looks more cheaper.

Of course not all goods to be sold like that, usually only for items most commonly sold. So deficit was covered by sales quantity.

Another positive impact of this technique is our stores branding. Because looking at a fairly cheap item in our stores, then consumers will automatically assume that all items in our stores are always cheaper than market price. So they do not hesitate to buy other goods. When in fact not case, price of other goods stay abreast of market prices or even higher.

That must be considered also, we should be able to analyze our position in market. If we as a market leader it must be ready with competition price of market challenger. Market follower is usually not too much trouble, simply by following price selling in market. Especially for market nicher he can set the selling price is more freely depending on niche that they conquered. The conclusion of each market participant will have its own characteristics to determine selling prices.

This is the first series of 6 to set the price of a product, wait for the sequel series. We learn about pricing, so we aim to increase sales.

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