In This Episode

Few things are more strategic when it comes to the success of your company than setting your selling price.  Yet we find that most small business owners take an overly simplistic approach to their selling price.  It might sound something like, “What’s the competition charge?” Or “What will the market bear?”.  While these might be good starting points when you first launch your business, chances are you will be leaving profit on the table, or worse losing money on some of your products or services.

So what’s the right way to set your selling price?  We advise our business owner clients to focus on a desired gross margin when setting their selling price.  For instance, if your product costs $50 to make and you would like to have a 50% gross margin then you would need to charge $100 for that item.  Now the question becomes, will the market bear that price?

One of the most common mistakes we see is folks “marking the price up” vs. properly calculating their gross margin.  We also see too many folks who don’t have all the costs fully loaded into their calculations.  The fully loaded number should include assumptions on things like how many hours people are going to work in a given year and allocating some overhead costs for things like rent and utilities.

Confused or intimidated?  Don’t worry, we’ve got you covered in today’s show.  Also, if you want to get a simple spreadsheet to help you make sure you are setting your selling price with the proper margin vs. markup, click here to download the spreadsheet.

People, Companies and Resources We Mentioned in the Show