Pricing Methods

Pricing is one of the most important aspects in generating revenues for your firm. Although there is no “The Best” way to price your products still there are a few methods that can help a firm to design and calculate the pricing for the goods they are going to sell. There are four common methods of pricing used by the accountants and financers to determine price of the product. These methods involve:-

  • Cost Plus Pricing
  • Target Return Pricing
  • Value Based Pricing
  • Psychological Pricing

Cost Plus Pricing

Cost Plus pricing is a technique where the price of good is set by adding the variable cost per unit, total fixed cost per unit and adding a small margin of profit over that cost. For example the variable cost per unit is 20 and the fixed cost per unit is 30 the total cost of the product becomes 50 and you add a 20 percent markup to the costs to make its price 60 per unit volume.

Target Return Pricing

In this pricing technique you assign the price to the product in order to achieve target return over your investment. For example you have invested 10,000 in your production and company. The assumed sales volume that will be sold in the first one year is 1000 units and if you want to recover your complete cost in the first year you need to yield a profit of 10,000 and you have to add $ 10 to the cost of each good that will give you the sales price $60 again.

Value Based Pricing

This concept means that pricing the product regarding the value it gives to the customer. This the most profitable version of pricing your products

Psychological pricing

This technique means to price the product according to the perception of the customers about your product.

 

 

 

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