How do I determine the price for my product or service?

By Ken McEntee

Pricing your product or service in a way that you can make a fair profit without scaring away price shoppers may be one of the most difficult tasks facing an entrepreneur.

Here are some tips for determining what your price should be, from Gary Cerasi, CPA, owner of Creative Business Strategies.

Q: How do I determine the price for my product or service?
A: This is a complicated formula and requires a business owner to know his fixed and variable costs. Fixed costs are those that don’t change much each month, such as rent and utility bills. Variable costs are the ones that grow with more sales and shrink with less sales, like materials and ancillary supplies.

An owner must calculate how many individual sales he or she makes each month and divide fixed costs by that number and add that number to the cost of materials, labor and other variable costs, plus a profit margin to arrive at the price.

Q: Is it always good to underprice my competitors?
A: Not if you lose money. It’s okay at first to gain market share, but you can only lose money for so long until you go broke.

Q: What is a reasonable profit margin?
A: Most business owners shoot for 30 to 40 percent. That should cover overhead of 15 to 25 percent, and a 15 percent profit.

Q: How do I know what my time is worth? What is a reasonable rate for an hour of my time?
A: That depends on your business. Professionals usually charge out at $100 to $200 per hour. Laborers and trades are usually $40 to $50 per hour.

You can learn more about operating a successful business by scheduling a no-cost consultation with Gary, at 440-546-9359. Creative Business Strategies is located at 192 East Wallings Road, in Broadview Heights. You can find more information at CreativeBizStrat.com.