How do you calculate a good selling price for your product?

How do you calculate a good sales price?

Coming up with a good sales price can sometimes be quite tricky. Follow these 6 steps to deal with all the issues you need to consider when setting a good selling price for your product or service.

1. Calculate your costs

The first step in calculating a good selling price is knowing what it costs to make your product or provide your service. This is your cost price. Here you look at:

• your variable costs, such as purchasing and production costs
• your fixed costs, such as rent, personnel costs, and insurance costs

You then calculate the cost price per product by:

• calculating the variable costs per product
• dividing the total fixed costs by the number of products
• adding these together to get the cost price per product

2. Determine your profit

When selling your product or service, you want to be able to pay your own costs first. But of course, you also want to make a profit. To achieve a good sales price, consider how much profit you want to make per product. This is your margin. For example, 20% on top of the cost price.

Example:

20% of €50 = €10

Sales price (cost price + profit) = € 60

3. Add VAT

If you must charge VAT on your product or service, add it to your selling price. In the Netherlands, the VAT rate is usually 21%.

Example:

21% of €60 = €12.60

Sales price including VAT = €72.60

4. Look at the market

It is also important to know what other entrepreneurs are charging for similar products. This will give you an idea of what customers are used to paying.

• Are your products better than or different from those of your competitors? If so, you may be able to charge a higher price.
• Is your price higher or lower than others are charging? Adjust it so you are not too expensive or too cheap.

5. Think about value for your customer

Customers are willing to pay for something that is valuable to them. Think about what makes your product unique and why customers want to buy it.

• Does your product solve a problem?
• Is it more convenient or does it save time?

If so, you can factor that into your price.

6. Test your price and keep checking

The last step is to test your price and keep checking. Ask customers for feedback and see how well your product sells.

• Is your price not working? Then adjust it.
• Are you selling a lot? Then you are on the right track, and you might even be able to increase your price in the future.

The difference between cost price and selling price

The cost price is what it costs you as an entrepreneur to make a product or provide a service. For example, the costs of materials, labour, packaging and transport, and some of the fixed costs such as your rent and energy costs. It is the total of what you spend per product.

The selling price is the amount for which you sell the product to the customer. This price is usually higher than the cost price, so that you make a profit.

Fixed and variable costs

When calculating your cost price, there is a difference between fixed costs and variable costs. Fixed costs are costs that remain the same for a longer period. Even if you don't sell the same amount every month. Examples of your fixed costs are the rent for business premises, personnel costs, and the depreciation costs of your equipment.

Variable costs are extra costs that you incur and that increase when you sell more. For example, packaging materials, raw materials, and shipping or transport costs.