As discussed in Part I of Pricing Products and Services, snooping around to see what your competitors are charging is a good starting point for establishing your own price structure. Here is another simple formula you can follow to help when choosing your price points.

First, determine your costs per item or service. Include any materials that you use like packaging, advertising, production costs, etc. Once you are done, you should have a rough estimate of how much each product you offer costs.

Next, determine the cost of your time and labor. Do this by adding the hours it takes you to complete the task. Then decide what your hourly wage will be. It’s up to you how much you will pay yourself. When in doubt start with minimum wage then gradually increase your wage to raise the price of the product. If you have a problem with this just think about what you might pay an employee to do the same job for you.

Now that you have added the cost and time, you need to add in a profit margin. This is typically about 30%-50% of the price you’ve come up with so far. And bam, you’re all done.

You should have the perfect price point to charge for your product or service. If you are unsure, do some testing. Try selling at a slightly higher or lower price to see which sells better. Keep in mind that most often it is easier to lower prices than to raise them depending on what business you are in.

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