The Essentials of Pricing

  Spring 2015
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 Setting a price for your products can often be a challenging job for both start-up and established businesses. It is however a key task since the success of any business relies on being able to make a profit.
Properly pricing a product can mean the difference between success and failure. Three factors that should be considered when setting a price for your product or service are: cost, price and the value of your product.

The cost is the amount you spend to produce the product. Total cost should include all variable costs associated with producing and marketing the product as well as the over-head or fixed costs of the business. Underestimating costs or not accounting for all costs can result in pricing a product too low and reducing your profitability.

The price is your financial return or reward for creating the product. It should reflect the costs to produce it as well as the perceived value of the product—and don’t forget to pay yourself ! Don’t undervalue your products or services; set a fair price that recognizes the unique features and benefits it offers. Also, be mindful of competitor pricing and possible substitutes.

The value is what your customer believes the product is worth to them. The better you understand the wants, needs, beliefs and values of your customer, the easier it is to accurately price your product. Value-based pricing allows you to price your product on the perceived value to the customer, rather than just the cost of the product, the market price, or a competitor’s price.

To learn more about how to price your products profitably, sign up for the Explore Local Marketing and Pricing for Profit workshop being offered April 29. For more information go to under the resource tab or contact one of the New Venture Specialists at 310-FARM (3276).

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For more information about the content of this document, contact Eileen Kotowich.
This information published to the web on May 26, 2015.