There are various complications when the pricing policy and profit elements are being considered.

These include:-

  1. The possibility of getting better discounts from your suppliers as your volume of sales increase, therefore improving your profits.
  2. The possibility of offering a variety of products at different prices. You will then have decide how to allocate fixed costs to different products.
  3. The need to decide at which point your volume sales will require you to increase your overhead costs.
  4. The need to take into account the taxation implications as they apply to your business.
  5. The fact that you may sell your goods in different ways which would make the variable costs more difficult to calculate.

Fixing price on the basis of cost plus a figure for profit is not that easy in many businesses. In order to achieve this you will need to know well in advance the volume of sales.

If you have to tender for projects you must judge carefully each step required to complete the work.

You will need to consider materials, time and the extent to which you depend on third parties or deliveries which could impact on the total cost of the project.

You must also understand that most jobs can be untaken at different quality levels. Once you have the cost you will need to add your required profit margin. You will then need to determine the quality levels and then pitch your tender on that basis, hoping that your customer is prepared to pay the price for the quality you specify and that this quality/price mix is better than your competitors.

Next Article – Business Planning –Competitor Pricing 

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