How Much Shall I Charge?
Four main factors will help you decide what to charge for your product or service: 1) your direct and indirect costs; 2) the profit you want to make; 3) your market research data on competitors' prices; and 4) the urgency of the market demand. There is rarely an exact "right" price but rather an acceptable price range within which you will want to fall. Avoid the common mistakes made by many new business owners--charging too much or too little. Use several approaches to arrive at a cost and "test" the price. If your ego is too involved, your price may be too high. On the other hand, if you have the attitude that "this is just a little something I do in my spare time" or "anybody could do this," then your price may be too low.

Here is a formula for setting a fair price. Calculate your price using other approaches, too, before you make a final decision on price:

Typical Pricing Formula
1. Direct Material Costs--Figure the total cost of the raw materials you have to use to make up your item. Figure the cost of a group of items and then divide by the number of items to find the cost per item. If you can easily and immediately determine the material cost of a single item, fine. Some items are produced in batches, however, and it is easier to get an item cost by dividing the cost of a batch by the number of items eventually produced.

2. Direct Labor Costs--Figure what you pay to employees to produce the item (whether or not you have employees now). You must assign a wage figure, even if you are the only one producing the item. Take the weekly salary you pay someone to produce the necessary number of items and divide it by the number of items. Add this figure to the Direct Material Costs total.

Materials + Labor = $__________.

3. Overhead Expenses--These expenses include rent, gas and electricity, business telephone calls, packing and shipping supplies, delivery and freight charges, cleaning, insurance, office supplies, postage, payroll taxes, repairs, and maintenance. The accuracy of your costing depends on estimating logical amounts for all categories of expenses. If you are working at home, figure a portion of your total rent or mortgage payment (in proportion to your work space and storage areas), or assign a reasonable, competitive rent figure for the same amount and type of space. List all overhead expense items and total them. Divide the total overhead figure by the number of items per month (or time period you used above). The answer is your overhead per item

Overhead + Materials + Labor = Total Cost/Item

4. Profit--Include an amount added to the cost of each item so you won't end up just breaking even or making the employees' wages. Check your competition and see what they are charging. (Retailers generally double the wholesale price.) If your product is a little better than the competition, charge a little more. If your product is comparable, price it similarly. Remember, you will get the profit from each sale, in addition to the salary figure. Add the profit figure you have chosen to the total cost per item to get your total price per item.

Profit + Total Cost/Item = Total Price/Item

Remember, the main purpose in operating a business is to make a profit. Don't undersell your product or service just because "I'd be baking cakes anyway" or "I'm just starting out" or" I work out of my home." If you have a new, rare, handmade product or personalized service, the demand may be so high that customers are willing to pay a little more.

Promotion
Promotion is an overall, long-range plan designed to inform potential customers about what you have to sell. Advertising is usually thought of as the paid communication part of the promotion program.

To develop a total promotional campaign you must answer these questions: 1) What image or message do I want to promote? 2) What are the best media and activities for reaching my potential customers? 3) How much time and money can I spend on the effort?

Develop a long-range, consistent program for building image and reaching customers. Your image should be reflected in your business card, logo, stationery, brochure, newsletter, telephone answering service, signs, paid ads, and promotional activities.

Word-of-mouth recommendations from satisfied customers are the very best promotion any business can have. Consider which promotional tactics will build the confidence and image you are looking for--giving speeches and interviews (often good for counselors, teachers, lawyers, consultants), having an open house or holiday home sale (for craftspeople), holiday recitals or shows (for music and dance teachers or day-care operators), free demonstrations and samples (for retailers, decorators, caterers).

Several small ads may have more impact than one large, splashy ad. Conduct a campaign rather than having a one-shot ad or event. If you hire a public relations firm, look for one that can give you personal attention and develop a total marketing plan for you, not just a couple of ads. The plan should include market research, a profile of your target audience, a clear description of the image they recommend you project, the written copy, and a list of media (including cost and scheduling calendars) that are best for your type of product or service. As a new small business owner, you will probably decide to set aside a certain dollar amount per year or a percentage of past, current, or projected sales for paid advertising.

If you Operate a factory, wholesale outlet, retail store, Service store, or are a builder, you will need to sell. No matter how
good your product is, regardless of what customers think of this, you must sell to endure.

Direct selling approaches are through personal sales efforts, Advertising and, for many companies, exhibit - including the
packaging and styling of the item itself - in windows, at the institution, or even both. Establishing a good reputation with the
general public through anyhow and distinctive services is a direct method of selling. While the latter shouldn't be neglected,
this brief discussion will be confined to direct selling methods.

To establish Your Company on a business footing requires a Whole Lot Of aggressive personal selling. You may have established
competition to overcome. Or, if your idea is new with little or no competition, you've got the extra problem of convincing people
of the value of this new thought. Personal selling work is almost always essential to accomplish this. If you are not a fantastic
salesperson, seek an employee or asociate who's.

A second way to build sales is by advertising. This may be achieved Through newspapers, shopping newspapers, the yellow pages
section of the telephone directory, along with other printed periodicals; radio and tv; handbills, and direct mail. The media you
choose, in addition to the message and kind of presentation, will depend upon the particular customers you would like to reach.
Plan and prepare advertisements carefully, or it will be unsuccessful. Most media are going to have the ability to describe the
characteristics of their viewers (readers, listeners, etc.). Since your initial planning described the qualities of your potential
customers, you need to match these characteristics with the media audience. If you are selling expensive jewelry, then don't
market in high school papers. If you repair bicycles, you probably should.

Advertising can be very costly. It is wise to place a limitation upon An amount to spend, then remain within that limit. To help
you in determining how much to invest, study the working ratios of similar companies. Media advertising salespeople can allow you
to plan and also prepare advertisements for you. Be sure to tell them your budget limits.

A third method of stimulating sales is effective displays both in Your place of business and outside it. If you have had no
previous experience in screen function, you will want to study the topic or turn the task over to somebody else. Observe displays
of other companies and read novels, trade magazines, and the literature provided by equipment manufacturers. It may be smart to
hire a screen expert for your opening screen and unique events, or you may get the help of one on a part-time basis. Much depends
upon your kind of business and what it takes.

The proper number and types of selling effort to use change from business to business and from owner to owner. Some companies
prosper with low-key revenue attempts. Others, such as the used-car lots, thrive on aggressive, hoop-la promotions. In any event,
the importance of successful selling cannot be over-emphasized.

On the other hand, do not lose sight of your major goal - to Earn a profit. Anyone can generate a large sales volume selling
dollar bills for ninety bucks. But that won't last long. So keep control of your own costs, and cost your merchandise carefully.

Record Keeping. 1 essential element of business management is the keeping of adequate records. Study after study shows that many
manager failures could be attributed to insufficient records or the owner's failure to use what information was available to him.
Without records, the businessperson can't see in advance that way the company is going. Up-to-date records may forecast impending
tragedy, forewarning you to take action to avoid it. While additional work must maintain a decent set of documents, you will be
more than paid for the effort and cost.

If You Aren't prepared to keep adequate records - or have somebody Keep them for you - you should not try and run a small
business. At a minimum, records are Required to substantiate:

1. Your yields under tax laws, such as income tax and social Safety legislation;

2. Your request for credit from equipment makers or a loan From a lender;

3. Your claims about the company, in case you would like to market it.

However, most important, you need them to run your business successfully And to raise your profits. Having an adequate. Yet easy,
bookkeeping system you may answer such questions as:

How much business I doing? What are my costs? Which seem to be too high? What's my gross Profit margin? My net gain? How much am I
collecting in my charge business? What's the state of my operating capital? How much cash do I have available? Just how much in
your bank? How much do I owe my Providers? What is my net worth? That is, what is the value of my ownership of The enterprise?
What are the tendencies in my Receipts, expenses, profits, and net value? Is my financial situation improving Or growing worse?
How do my resources compare with what I owe? What is the Percentage of return on my investment? How many cents out of each dollar
of Sales are net gain? Answer these and other questions by preparing and studying balance sheets and profit-and-loss statements.
To do this, it is Important to record information regarding transactions as they happen. Maintain This information in a detailed
and organized fashion and you will have the ability to answer the above questions. You will also possess the answers to these
other vital questions About your business as: What services or products do my clients enjoy best? Next best? Not at all? Do I take
the product most often requested? Am I Qualified to render the professional services they need most? How a Lot of my charge
Clients are slow payers? Shall I switch to money only, or use a credit card Bill plan?

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