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Your pricing strategy is an important part of the decision-making process as a small business owner, it affects everything from your cash flow to which expenses you can afford to cover. One of the simplest ways to price your products/services is with the cost-plus pricing model.
1. Add up all of your expenses. It's important to consider all of the expenses that go into your total product and service, not just the cost of materials and production time. Possible expenses may include:
Cost of materials
Production time
Packaging
Promotional materials
Shipping/Delivery/Transportation
Affiliate Commissions
2. Set your profit margin. What is a good profit margin? A good profit margin will depends on many factors including your location, industry, and circumstances. As a general rule of thumb, a 10% net profit margin is deemed average, while a 20% margin is deemed high and 5% low. If you want to compare your company’s performance based on profit and merchandise margins, check out the average profit margin for your industry.
3. Done. You have your cost.
4. But wait, pricing is not a one-time decision. Remember, the price you use to launch a product or service is not the price you will always use. It's good to continue re-evaluate your pricing from time to time.
Use our free pricing calculator spreadsheet to make sure you're making money on the products and services you sell!