Starting a new business can be very stressful. You may have a great product or service to sell, but there are many aspects that must properly be worked out. Elements such as costs for labor, overhead expenses, and profit are only a few things to worry about.
The procedure you use in setting your price will vary according to the type of service or product business that you operate. However, Guide to Starting Your Own Business by Black Enterprise believes that no matter what product or service a business offers, price consideration will depend on the following elements:
Market Size – In order to be successful, you will have to take a piece of your competitor’s market share. Make sure that the market is large enough to support your product/service as well as others. Consider the potential sales volume in the market you intend to serve. Thorough market research is suggested.
Distribution Size – Choose distribution channels that will yield revenues, not subtract your profits. Distributors can include: wholesale, retail, direct mail, the Internet, and telemarketing.
Price Elasticity – A product is only considered elastic if the demand for it changes dramatically when the price slightly changes. The general rule of dumb is: the greater the elasticity of your product, the closer you should price it to match the amount your competitors are charging for similar goods.
Your product or service may be unique, but customers will not pay a premium price for a similar product that is available at a lower cost from your competitor.
As stated above, pricing considerations vary from business to business. Be sure to conduct a thorough market research before setting prices for your product or service.
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