How to Price your Products in your School Based Enterprise
Pricing products as a new business always comes with a challenge of wondering how do other businesses land on the cost of their goods? Should you mirror what other businesses are doing or raise or lower your prices? The first step is to establish your baseline of your cost of goods.
The cost of a good or service
This an exchange (typically a monetary exchange) in order to obtain something. The price of goods and services is established to fulfill a successful exchange process with the customer.
Customer perspective: price is what must be given up in order to get something that they want.
Seller perspective: price is revenue that is gained for a product that leads to profit for the seller.
Making good pricing decisions is critical to the success of the business. If a product is priced too high or too low, it can create a loss for the business. The term price is used interchangeably with the term cost—however, the two are very different. Price is what a customer pays a seller—usually a retailer. Cost is what the seller incurs (which may include cost of production) to obtain the product.
Internal Factors: are within the control of the business or can be altered by the business: cost of goods, operating expenses, product mix.
External Factors: occur outside of the business operation and cannot be controlled by the business: supply and demand, government regulations, competition, natural and economic events.
Expenses
If you are in retail and are reselling goods that you bought at wholesale value, packaging products, and allow for cashless sales there are costs associated with that. These costs impact your profit and it is important to break down these expenses so you have a clear understanding of the profit you will bring in when you decide the price. Below is a case study to help you visualize an example.
Net revenue vs. gross revenue
Understanding net versus gross revenue is crucial. If your school based enterprise brought in $1,500 last month in gross revenue what does that mean? This means this is every dollar that was received from customers. However, that does not mean you made $1,500 in profit. Profit is your revenue minus your expenses.
After your expenses have been subtracted from your overall revenue, this equals your business’s profit. In the example above, the price you are charging the customer is $39. What is the net profit you are making on this polo? (Revenue - expenses = profit.) The profit your business would make is $13.78.
Want to take this a step further?
We have a full downloadable lesson plan and PowerPoint to help you and your team on pricing strategy. Apply this to your SBE to help you figure out the best pricing strategy for your products.