How should I price my product?

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Diane Sawyer

Tax Question:

How should I price my product?

Facts:

Knowing how to price your products is crucial to being successful in business. Price too low and your expenses may exceed your revenue or your product may be perceived as low quality. Price too high and you run the risk of tying up cash resources by carrying excessive inventory that may sit on shelves until it is no longer sellable.

Discussion:

There are several methods you can use to determine pricing, such as:

  • Cost plus pricing—the material costs, labour costs and manufacturing overhead costs to build the product plus a percentage markup.
  • Demand pricing—the price customers are willing to pay for your product.
  • Competitive pricing—the price your competition is charging for the product.
  • Markup pricing—taking the cost that you paid for the already manufactured product plus a markup.

There is not one right way to price your product as each business has different considerations. Some important factors to keep in mind though when determining price are:

  • Know your overhead costs
  • Know where the market is heading
  • Know how many competitors you have
  • Know what your competitors are charging
  • Know what the demand is for your product

Whichever method you choose to use, it is a good idea to review the above factors periodically to ensure know that your price is still appropriate.

Diane Sawyer
Tax Technician, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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