How To Price Your Product? The Fair & Correct Way

John & Michael are meeting up at a local coffee shop. John is an owner of a new fruit beverage plant & Michael is a seasoned entrepreneur.

John: [Shakes hand with Michael’s] Hi Mike! What’s up?

Michael: Nothing special. What about you?

John: Well, our plant is almost ready to start production & we’ll kick start our marketing soon.

Michael: [Smiles] Great!

John: But before we go to market, we want to be sure that our product selling price is fair and correct.

Michael: If you want to make your product price ‘fair’, then you must think like a marketer…

John: [Interrupts Michael] And, for the price to be ‘correct’?

Michael: Then, you must think like an accountant.

John: Let us start with the ‘fair’ part.

Michael: Yes. As a marketer, you need to consider: 1) Competitor’s price 2) Value to consumers 3) Volume-Profit trade-off

John: Competitor’s price means I must look at competitor’s price & offering while fixing my price.

Michael: Correct. And, value to consumers means the value your product provides to end-consumers.

John: Got it! Can I equate ‘value’ with ‘benefits’?

Michael: Of course, you can. Now, comes the third factor i.e. Volume-Profit trade-off. See, volume sales & profit per product are, in general, inversely proportionate. The more profit you keep per product, the lesser will be your total sales & vice-versa.

John: We need to strike a right balance between volume & profit per unit?

Michael: Perfect! That’s what I wanted to convey. What is that ‘right balance’ will depend on factors like your growth plan, monthly expenses etc.

John: [Smiles] Thanks a lot. Time to jump to the ‘correct’ part.

Michael: Yup. As an accountant, you must ensure that the selling price is covering cost & giving generating profit at the unit level.

John: Sounds simple.

Michael: But, all that glitters is not gold!

John: [Laughs] Ok, please explain.

Michael: [Pulls phone out of pocket] Look at this YouTube video made by me.

John: [After watching the video] That was practical. Now, I have understood the ‘correct’ part as well. Thanks a lot.

Michael: My pleasure!