Download 3.03 Compute a clients cost of goods and services

Objective 3.03:
Demonstrate ways to compute
client costs of goods and
services.
There are many factors that affect pricing
Economic Factors


Supply: the amount
of goods or services
that producers are
willing to provide
Demand: the
amount of goods or
services that buyers
are willing to
purchase.
Competition

How your
competition is
pricing their
product or service
may determine
how YOU will price
yours.
Costs and Expenses

In order to
make a
profit, your
prices must
be set to
exceed your
costs and
expenses.
Pricing Strategies
Demand-based Pricing


Set your price
according to what
customers are willing
to pay
Must have a good
understanding of the
consumer’s perception
of the product or
service.
Competition-based Pricing

Determine your
competitor’s pricing.
Then:
 Price below the
competition
 Price above the
competition
 Price in line the with
competition.
One-Price Policy
All customers pay the same price.
Psychological Pricing – price is
based on the customer’s perception

Prestige pricing:
higher than
average price to
suggest
exclusiveness,
status, prestige.
Psychological Pricing cont.

Odd/Even pricing


Odd prices
suggest bargains
– 4.99
Even pricing
suggest higher
quality – 5.00.
Discount Pricing – reductions from the usual
price of a product or service

Cash discounts:
encourage prompt
payment

Quantity discounts:
offered to buyers for
placing large orders


Promotional discounts:
offered to sellers who are
willing to promote a
product or service
Seasonal discounts:
offered to buyers who are
willing to buy in advance of
customary buying season.
Markup


Amount added to the cost of an item to cover
expenses and ensure profit
Markup can be based on:

A standard percentage the business needs
per item to cover expenses

The markup of competitors

The average markup for the industry.
Formulas for Calculating Cost, Retail,
Markup, and Markup Percentage




Markup / Cost = Percentage of Markup
 $5.00 / $15.00 = 33%
Retail - Markup = Cost
 $15.00 - $5.00 = $10.00
Cost + Markup = Retail Price
 $25.00 + $15.00 = $40.00
Cost x Markup % = $ Markup
 $10.00 X 150% = $15.00