- Writing a Business Plan
- Financial Statements
- Business Forecasting
- Business Checklist
STEP 6 - Determine Your Selling Prices for each Product
Now its time to set your prices for each product you plan to sell. The pricing methods available to assist you in setting your prices include; Markup Pricing, Breakeven Pricing, Perceived Value Pricing, Hourly Rate Pricing, and Competitor Pricing (Please refer to the section entitled " Setting Your Prices" for more information on these pricing methods).
Most products purchased for resale have something called the suggested retail price. This price is generally set by the manufacturer which suggests the price retailers should charge their customers. You can acquire "suggested retail prices" from suppliers (manufactures, purchase agents, wholesalers, etc). Moreover, John would have asked his supplier for a suggested retail price for each product he plans to sell.
Lets assume, Fine Clothing Enterprises (his supplier) informs John that many clothing retailers set their prices based on "KEYSTONE". Keystone means double the cost of a product's purchase price. Businesses using keystone are in essence using the Markup Pricing Method to set their prices. The markup is 100% on cost. For example, if John purchases an item of clothing costing $50.00 (shipping charges included), he would sell it for $100.00 (the product's cost is simply doubled). Let further assume, John plans to base his selling prices on the Keystone approach. Therefore, he would simply double each product's cost to arrive at each product's selling price. Given this information John can now develop the following chart which depicts each product's selling price.
|Total Cost per
unit + shipping
|Levi Jeans||$ 28.00||$ 56.00|
|Edwin Jeans||$ 33.00||$ 66.00|
|Guess Jeans||$ 30.00||$ 60.00|
|Ikeda Jeans||$ 29.00||$ 58.00|
|Dockers Pants||$ 25.00||$ 50.00|
|Cream Pants||$ 28.00||$ 56.00|
|London Fog Sweaters||$ 25.00||$ 50.00|
|Guess Sweaters||$ 28.00||$ 56.00|
|Long Sleeve Shirt|
|Polo||$ 16.00||$ 32.00|
|Gasoline||$ 17.00||$ 34.00|
|Hollywood||$ 8.00||$ 16.00|
|Manager||$ 9.00||$ 18.00|
|Razzy||$ 10.00||$ 20.00|
The first column list each product John plans to sell. The second column represents John's total product cost for each clothing item he intends to sell (shipping charges included). The third column depicts the prices John will charge his customers for each product; based on a 100% markup. (IE Keystone).
John has gathered all the information needed in order to calculate his weighted average selling price and his weighted average product cost. Remember, the objective of developing these weighted averages is to reduce the number of selling prices (13 selling prices in John's case) down to one single selling price and to reduce the number of product costs (13 costs in John's case) down to one single product cost. Lets begin by calculating John's Weighted Average Product Cost (Step 7).