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How to Set Prices in a Manufacturing Business

A Step by Step Guide to Pricing in a Manufacturing Company (Pricing Strategies)

How to Set Prices in a Manufacturing BusinessThis guide will walk you step by step through all the essential phases of setting optimal prices in a manufacturing company. You will learn exactly how to set prices in a way that will allow you to make money and still be competitive

In setting prices in a Manufacturing Firm, the goal should be to maximize profit. Although some managers feel that an increased sales volume is needed for increased profits, volume alone does not mean more profit. The ingredients of profit are costs, selling price, and the unit sales volume. They must be in the proper proportions if the desired profit is to be obtained.

No one set prices formula will produce the greatest profit under all conditions. To price for maximum profit, the manager must understand the different types of costs and how they behave. You need the up-to-date knowledge of market conditions because the "right" selling price for a product under one set of market conditions may be the wrong price at another time.

The "best" price for a product is not necessarily the price that will sell the most units. Nor is it always the price that will bring in the greatest number of sales dollars. Rather the "best" price is one that will maximize the profits of the company.
The "best" selling price should be cost orientated and market orientated. It should be high enough to cover your costs and help you make a profit. It should also be low enough to attract customers and build sales volume.

This book takes into consideration all of the above to help you calculate the most profitable prices.
Here's what’s in the book:
* Common problems in setting prices and how to overcome them
* how to determine your costs
* Cost calculation examples
* How to set optimal prices
* How to raise prices without losing customers
* How to calculate hourly and project-based pricing
* all these and much more

Table of Contents

1. Introduction
2. How to set optimal prices
3. Complications in setting prices and how to overcome them
4. How to Raise Prices Without Losing Customers
5. Calculating Hourly and Project-Based Pricing

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Sample Content

In setting prices in a Manufacturing Firm, the goal should be to maximize profit. Although some owner-managers feel that an increased sales volume is needed for increased profits, volume alone does not mean more profit. The ingredients of profit are costs, selling price, and the unit sales volume. They must be in the proper proportions if the desired profit is to be obtained.
No one set prices formula will produce the greatest profit under all conditions. To price for maximum profit, the owner-manager must understand the different types of costs and how they behave. You need the up-to-date knowledge of market conditions because the "right" selling price for a product under one set of market conditions may be the wrong price at another time.
The "best" price for a product is not necessarily the price that will sell the most units. Nor is it always the price that will bring in the greatest number of sales dollars. Rather the "best" price is one that will maximize the profits of the company.
The "best" selling price should be cost orientated and market orientated. It should be high enough to cover your costs and help you make a profit. It should also be low enough to attract customers and build sales volume.

How to Set Optimal Prices
In determining the best selling price, think of price as being like a four layer cake. The four elements in your price are:
(1) the direct costs,
(2) manufacturing overhead,
(3) non-manufacturing overhead, and
(4) profit.
Direct costs are fairly easy to keep in mind. They are the cost of the material and the direct labor required to make a new product. You have these costs for the new product only when you make it.
On the other hand, even if you don't make the new product, you have manufacturing overhead such as janitor service, depreciation of machinery, and building repairs, which must be charged to old products. Similarly, non-manufacturing overhead such as selling and administrative expenses (including your salary) must be charged to your old products.

Direct Costing
The direct costing approach to setting prices enables you to start with known figures when you determine a price for a new product. For example, suppose that you are considering a price for a new product whose direct costs - materials and direct labor - are $3. Suppose further that you set the price at $5. The difference ($5 minus $3 = $2) is "contribution." For each unit sold, $2 will be available to help absorb your manufacturing overhead and your non-manufacturing overhead and to contribute toward profit.

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