nce you have a thorough understanding of your costs it's time to explore two of the ways your company can set pricing objectives. Generally, pricing philosophy is based on company goals such as:

Sales Growth - For a variety of reasons, such as immediate expansion needs, a company may set sales growth as

Sometimes pricing your products seems like an adventure into a strange new world. The process can seem too complicated for anyone but a rocket scientist to comprehend. Our goal is to bring this process back to Earth for you by explaining some pricing basics.

How do you price your product now? Answers from businesses can vary from "less than our competition" to "the highest price my customer will pay." Either tactic has a negative side that can cost your company customers and profits. Because most of you are too busy to be rocket scientists in the pricing galaxy, we developed this series of steps to help you understand pricing - no space ship required.

1. DO YOUR HOMEWORK

Know Costs: There is no substitute for thoroughly understanding your product costs and the variability of those costs - that means the resources used to create, produce and market your product. Unless you know all your costs by product and by customer you could be losing, rather than making, money with each sale.

Understand Market Value: Realistically compare your company's product to your customer's expectations and perceptions. You must also understand your competition and trends in your target industry.

Set Objectives: Once you have a thorough understanding of your costs it's time to explore two of the ways your company can set pricing objectives. Generally, pricing philosophy is based on company goals such as:

Sales Growth - For a variety of reasons, such as immediate expansion needs, a company may set sales growth as a

rom businesses can vary from "less than our competition" to "the highest price my customer will pay." Either tactic has a negative side that can cost your company customers and profits. Because most of you are too busy to be rocket scientists in the pricing galaxy, we developed this series of steps to help you understand pricing - no space ship required.

1. DO YOUR HOMEWORK

Know Costs: There is no substitute for thoroughly understanding your product costs and the variability of those costs - that means the resources used to create, produce and market your product. Unless you know all your costs by product and by customer you could be losing, rather than making, money with each sale.

Understand Market Value: Realistically compare your company's product to your customer's expectations and perceptions. You must also understand your competition and trends in your target industry.

Set Objectives: Once you have a thorough understanding of your costs it's time to explore two of the ways your company can set pricing objectives. Generally, pricing philosophy is based on company goals such as:

Sales Growth - For a variety of reasons, such as immediate expansion needs, a company may set sales growth as

understand pricing - no space ship required.

1. DO YOUR HOMEWORK

Know Costs: There is no substitute for thoroughly understanding your product costs and the variability of those costs - that means the resources used to create, produce and market your product. Unless you know all your costs by product and by customer you could be losing, rather than making, money with each sale.

Understand Market Value: Realistically compare your company's product to your customer's expectations and perceptions. You must also understand your competition and trends in your target industry.

Set Objectives: Once you have a thorough understanding of your costs it's time to explore two of the ways your company can set pricing objectives. Generally, pricing philosophy is based on company goals such as:

Sales Growth - For a variety of reasons, such as immediate expansion needs, a company may set sales growth as

uct and by customer you could be losing, rather than making, money with each sale.

Understand Market Value: Realistically compare your company's product to your customer's expectations and perceptions. You must also understand your competition and trends in your target industry.

Set Objectives: Once you have a thorough understanding of your costs it's time to explore two of the ways your company can set pricing objectives. Generally, pricing philosophy is based on company goals such as:

Sales Growth - For a variety of reasons, such as immediate expansion needs, a company may set sales growth as

nce you have a thorough understanding of your costs it's time to explore two of the ways your company can set pricing objectives. Generally, pricing philosophy is based on company goals such as:

Sales Growth - For a variety of reasons, such as immediate expansion needs, a company may set sales growth as an objective. When selecting this as an objective, it is critical to remember that higher sales do not automatically produce higher profits. In fact, sometimes the cost of expanding sales volume, such as increased costs of production, distribution or customer service, becomes so great that profits actually decrease.

Profit Growth - Frequently, corporate goals such as a targeted return on investment or a profit maximization philosophy necessitate a "pricing for profit" objective. Be sure you take both short and long-term profit goals into account when implementing this objective. Also, study the implications of each pricing change on the health of your business.

2. SELECT YOUR STRATEGY

It's now time to select your pricing strategy based on your costs, company objectives and the perceived market value of your product. Although strategies can become quite complicated and detailed, the following list discusses basic options most companies find useful. Your choice depends on an internal assessment of your company's objectives and an objective analysis of the market in which you compete.

Cost-Based Pricing:
Definition: Price is based on a product's total fixed and variable costs. Example: Typical