5 Ways to Determine the Selling Price of a Product

Being a beginner businessman will provide many challenges that need to be learned in order for the business to run well and profitable. There are many things that must be taken into account carefully, one of which is the selling price of the product. 

The selling price of the product becomes one of the determinants, whether it attracts buyers, makes a profit, or actually brings losses due to inappropriate prices.

When the price of the product is too high, customers can be reluctant to make a purchase, because there are many similar products at a cheaper price. Vice versa, if the price of the product is too cheap, it can cause losses in the business.

Make sure you always have the right calculations and considerations in determining the price of the product in the market. In order to make it easier for you to determine the selling price of the product, here are some ways to determine the price of the product that can be used as a benchmark.

1. Markup Pricing

Markup pricing is a technique of determining the selling price of products by adding value to profits from the value of the raw material price of the product.

You can sum the overall cost of buying raw materials first, then determine a certain percentage and sum it to get the selling price of the product.

Selling price = raw material price + (raw material price x Markup)

For example: 

If you want to sell iced coffee with a capital of $ 5 per glass, while you want to get a profit (markup) of 25%, then the calculation is as follows: 

Selling price = $5 + ($5 x 25%) = $6.25 per glass. 

Based on the calculations above, then you will get a profit of $ 1.25 for each cup of coffee sold.

2. Margin Pricing

The Margin Pricing technique is the opposite of markup pricing. In this method you will determine the amount of capital and also the selling price of the product first, then find the percentage of profit obtained from the sale.

Margin pricing = (Selling Price – Capital Price) / Selling Price

For example:

You plan to sell iced coffee for $ 5 per glass and want to sell it at a price of Rp 10 per glass. Then the calculation of the percentage of profits is as follows: 

Margin pricing = ($10 - $5) / 10 = 50%

If you feel the amount of profit above is too large, then you can reduce the selling price of the product. However, if you feel the amount of profit is too small, then you can increase the selling price of the product.

3. Value Based Pricing (VBP)

VBP becomes a way of determining selling prices that are unique and different from others. In this method, you will determine the selling price based on the value obtained by the customer.

Your customers will determine how much the product is sold in the market based on their desire to pay (spend money) to get the product you sell.

This technique is quite difficult to apply in business, although there are some business people who use it. To apply this in business, you can use at least the following 2 steps:

Do research in advance on customers, so you get their response to products that will be sold or are being released in the market. 

Immediately determine the selling price is quite high from the beginning.

4. MSRP (Manufacturer Suggested Retail Price)

MSRP is the pricing of products that are done by way of the business owner suggesting a certain price to his customers. 

This method is quite well known by certain applications, for example: "adjusted retail price". In general, MSRP is used in manufacturing companies, such as automotive companies and others.

Price changes are very likely to occur in this one technique. Although in certain products already use the MSRP label, there is always the possibility of the manufacturer or retailer making price changes to be higher. 

This does not matter, especially if it turns out that the market demand for the product is also high. And conversely, the opportunity of price decline can also occur adjusting the conditions of stock of goods that are likely to be many in the market.

5. Keystone Pricing

Keystone Pricing is a technique of determining selling prices that is done by doubling the capital value of a product. For example: if a jacket is made with $10 to sell it at a profit of 100%, then the customer has to pay $20 to get the jacket.

Use the Right Selling Price Method

For those of you who run a business, make sure you have understood well how to determine the selling price. There are many methods of calculating the selling price that can be used. As much as possible you use the right method from the beginning, so that business sales can bring profits and all services and production have been costly.