There are more than a dozen ways of putting a price on your product out there, all of which take into account the crucial important factors related to production costs and branding. These factors the cost of raw material, market positioning, product demand among others. For instance, if the cost of your raw materials often shift, then your selling price should be able to cover such fluctuations.
These factors aside, it’s key to evaluate the pricing objectives of the business. The objectives may vary from maximizing the sales quantity, launching a competitive price against your competitors, achieving short term profits, among others.
Whatever the reason may be, it is paramount to study your product and your market to be able to achieve competitive pricing and optimum profits.
However, It may seem too extreme to immediately go into a complex price study if you are a stay at home mom who’s hoping to earn some money by selling baked goodies. Or maybe an amateur photographer hoping to get some extra income during your free time through simple photography services may not have the time to gather all essential information nor the resources to fully analyze his pricing scheme.
Well, you need not worry, you can try out these simple pricing techniques
1. 30% profit margin for buy-and-sell items
A wholesale mtumba store in your Gikomba is selling quality secondhand shoes for KSh 500. You can sell these products in your estate for KSh 650. The simple formula here is to multiply the product cost by 1.3 and the result is your selling price.
2. 130% profit margin for make-and-sell items
Let’s say you plan to sell custom designed fancy paintings to your friends and office mates. The raw materials costs KSh 10,000 while your other expenses such as transportation costs add up to KSh 2,000. The total production costs is therefore KSh 12,000. With that inventory, you are able to produce 20 paintings.
The formula here is to multiply the production cost of the product by 2.3 to get the selling price.
In this case, KSh 12,000 multiplied by 2.3 equals to KSh 27,600. Divide this by the total output (20) and you get the selling price for each painting which is KSh 1380
3. Relative rate for freelance professional services
You are a software programmer by profession and a friend is asking you to develop a simple customized system for his business. You can finish the project in ten days if you work for 4 hours every day.
If your current salary is KSh 50,000 a month for an eight-hours-a-day, five-times-a-week job, then your hourly rate is your monthly income divided by 160 (number of hours you work in a month). The result is KSh 312.50 per hour. Multiply this by 40 hours (4 hours x 10 days) and you get the amount you will have to charge your friend, which is KSh 12,500.
4. 10% of production cost for amateur services with high material expense
A friend of mine studies landscaping at a local university. He decided to test his skills on his father’s garden and the result was a breathtaking one. His father’s friend liked the way he did it and asked him to do the same on his garden. My guy was in a dilemma though, he didn’t know what to charge him. This is what I advised him to go about it. We did the calculations and realized he was to spend KSh 15,000 on additional plants and other materials necessary to execute the design.
We added 30% in the product cost (He was to buy the materials therefore He should earn profit as in the case of buy and sell items). Therefore, 15,000*1.3= 19500. We then added 20% of the result which was to be the service charge. (19500*1.2=23,400). Therefore the total cost of the project was KSH 23,400 and my friend pocketed a cool KSh 8,400. After all, he had just completed his 2nd year of his 4 year degree program.
5. 80% of current professional fees for amateur services with low material expense
Your cousin, who is planning to wed this June, is having second thoughts on hiring a professional photographer for their wedding. The photographer is asking for a fee of KSh 50,000
If you think you can do the task and possess enough technical expertise to execute the job. Then offer to do the project for 80% of the professional offer or KSh 40,000. Just multiply the amount by 0.8 and you will get your price tag.
These pricing strategies are based on best known practices mostly used by freelancers and entrepreneurs. The formulas offer a way for you to have a start-up figure to estimate how much you should charge for your product or service.
After using the techniques above, you can always adjust your rates according to fair market prices and other factors which you might want to consider.
As your venture grows and other financial elements start making an impact on your business, it is advised that you apply more extensive techniques and calculations into your pricing scheme.
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