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Index
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Let’s say that Product X costs you $20 to make, market, sell, and distribute. But
let’s say that your customer is only willing to exchange $10 for it. This is
obviously not a profitable thing for you to be selling! Contrary to what we are
told by used car dealers on TV, you cannot “make it up in volume!”
Naturally, for every product that you sell, you know your cost of production. So
all you really need to know is “what it’s worth to your customer.” Remember, if
your customer does not “make a profit” on your product, he won’t be back.
Since any business thrives on lifetime relationships and not one-night stands,
you must, must, must...
Know that price point at which your customer makes a profit by
buying your product. The key word in the preceding sentence is, of course...
Know. Not “guess” or “ball park” or “gut feel”... know. Remember those “soft
data” techniques?...
• Evaluate product features and customer benefits?
• Consider the size of your target market?
• Evaluate your channel of distribution? High or low cost of entry?
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Make Your Price Sell!
3 5
• Mark up x% over your cost of production?
• Factor in your capital costs (ex., R&D, equipment) over the expected
volume/product life cycle?
• Factor in marketing and overhead expenses, distribution costs, sales
commissions, discounts, and finally, of course, your desired profit?
• Undercut competitors’ prices?
• Ask key (friendly) customers?
• Consider the value perceived by your customer?
• Get feedback from salespeople?
• Weigh typical customers’ “disposable income”?
• Solicit advice from consultants or business associates?
Simply mix all these factors together and come up with a number that you hope
proves to be profitable, right? Wrong...
Even if you do every single one of the above, the data is just too
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