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Pricing – Determining the price

Pricing – Determining the price. Wednesday, December 8. Two Key Factors:. The cost of doing business. The profit that a company hopes to make from the sale of its product or service.

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Pricing – Determining the price

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  1. Pricing – Determining the price

    Wednesday, December 8
  2. Two Key Factors: The cost of doing business. The profit that a company hopes to make from the sale of its product or service. All businesses, big or small, retail or wholesale, manufacturer or importer… use these two factors to establish prices.
  3. Markup The amount of money that is added to the original cost of a product is there to cover business expenses and to make a profit. It is usually a percentage of the cost.
  4. Margin The percentage of the price charged to the consumer that is not used to pay for the cost of the item. If a product sells for $29.99 and costs $20.00 the store has $9.99 remaining in the margin. 33% margin.
  5. Profit When there is money leftover after all the store’s expenses are paid, the owners get to keep it. This is called profit. Calculating Profit: Markup (Margin) – Business Expenses = Profit $9.99 – $6.00 = $3.99
  6. Manufacturers Costs Products cost manufacturers less to produce than the price they sell products to retailers. This money is used to cover the rent of the factory, supplies, salaries, and materials used to make the product.
  7. Break-Even Analysis Calculating the price to sell a product: Step 1 – Determine how many units must be sold at a given price to cover operating costs. This is the break-even analysis, and it is only a starting point for setting the actual price. Once the business has covered its costs, it can start to calculate profit.
  8. Elements of the Break-Even Point In order to calculate the break-even point, a business must first calculate its variable costs, fixed costs, and gross profit (contribution margin). In groups of 2-3, discuss each of these elements (pg. 247-248). Read pg. 248 – 253 Define: Break-Even Point Elements of “Economies of Scale” & “Diseconomies of Scale” Answer ICE questions (pg. 253) : 1 (a), 1 (b), 1(c), 2 (a) & 3 (a)
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