Planning #13 => The Selling Price

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Common Pricing Methods
  • Cost-based pricing: Set your price as a multiple of cost, or cost plus a determined amount. An example would be a book store selling each book for 150 percent of whatever amount the store paid for it.
  • Value-based pricing: Base your price on what your product and service is worth to the buyer. Computer software, for example, is often priced according to the time-savings and productivity gains, rather than the direct cost.
  • Market-based pricing: Let the market determine the price. If everybody else charges $15 for a haircut, you charge $15 for a haircut, or some price related to $15 depending on your strategy.

However, the most common pricing error in startup business plans is pricing too low. Entrepreneurs often think a new business has to offer lower prices than the competition, and that somehow a low price is related to success. Because of this common error, startup businesses fail to cover costs, they fail to generate capital to grow, and they just plain fail.

Price

Value