How do I set the price of my product or service?

Continuing with pricing , we have already told you about some strategies that can help you to establish your prices , but now we will talk about how you can carry it out in a practical way, this way of calculating your sale price is from a business perspective, assuming that the profit margin is to reinvest in your business.
¿Cómo fijo el precio de mi producto o servicio?

Continuing with pricing , we have already told you about some strategies that can help you to establish your prices , but now we will talk about how you can carry it out in a practical way, this way of calculating your sale price is from a business perspective, assuming that the profit margin is to reinvest in your business.

First we are going to clarify, how do I establish the price of my products? For this you must take into account your variable costs and your fixed costs , after having these costs clear you can establish a sale price, in each category we will specify what they are some variable and some fixed costs:

  • Variable cost (the materials you use):

In this area, you must take the total cost of the material to be used and divide it according to the scope:

  • Sublimation ink, you must divide the total cost by the number of sheets you can print.
  • Sublimation sheet, you must divide the total cost between the number of sheets that the package brings.
  • Cost of the sublimable material, this is taken directly from the cost of the product, whether it is a cup, or plate or a tshirt.

Let's calculate these :

Sublimation ink kit (100ml) RD$1800, assuming that our designs do not consume too much ink we could print 150 pages, the cost per page would be: RD$1800/150= RD$14 per page.

100 sublimation sheets RD$800, assuming that we do not damage any sheet, we would have a price per sheet of RD$8.

Sublimation thermos 600ml RD$160, this is the cost per unit of our thermos.

To sublimate this thermos we will have variable costs of: RD$160+RD$8+RD$14 = RD$182

  • Fixed cost (services, consumption of your equipment and responsibilities that you must fulfill within a specific period):

In this aspect you must consider your fixed costs, in this case one way to calculate it is by dividing your monthly fixed cost , between the number of days that we use the service and from there to the number of hours that we will dedicate to our business. Let's show some examples:

  • Assistant , imagine that you pay him RD$9000 per month (here you could consider the salary you want to earn).
  • Luz imagines that you pay a monthly bill of RD$3,000.

Let 's do the calculation of these :

  • To know how much your assistant is worth to you, we have to adapt this fixed cost to the manufacture of a unit, for these let's do the following calculation:

How many days a month does my assistant work ? Let's imagine that the answer is 24 days, from Monday to Saturday. We are going to divide the monthly cost between the days: RD$9000/24= $375 a day we pay you.

How many hours does my assistant work ? My assistant spends 7 hours a day at work. Let's divide the cost per day by the cost per hour RD$375/7=RD$53.57 per hour. Now we must calculate the number of cups or thermos that our assistant makes per hour, let's assume that it can make approximately 9 thermos per hour (we take into account that it would take approximately 6 minutes for each cup).

What is the cost of my assistant per cup ? let's take the total per hour, between the number of cups made RD$53.57/9= RD$5.95 per thermos .

How do I calculate the cost of electricity per product ? Here we do the same exercise , we divide the total electricity by the number of days per month with which we use electricity to work, let's assume that there are 24 days, that is, RD$3000/24= RD$125 per day of electricity , now we divide that amount, between the total hours we work, let's assume it will be 7 hours, RD$125/7 = RD$17.85 per hour of electricity, and now we divide it by the number of thermoses we make in an hour RD$17.85/9 = RD$1.98 we consume of light per thermo made , 

Now that we have both calculations, we could tell you that the total cost to make a thermos would be:

  • Variable costs: RD$160+RD$8+RD$14=RD$182
  • Fixed costs: RD$5.95+RD$1.98=RD$7.93

In total , the customization of a thermos would cost us: RD$189.93

To calculate our final sale price we must take into account the following:

To our cost we must add part of our variable costs in case the material is damaged, we will add RD$189.93+RD$182=RD$371.93 and now we will do the calculation with our profit margin, we will assume a 30% margin, which would be RD$371.93 *0.30 = RD$111.57 + RD$371.93 = RD$483.5

Where, RD$111.57represents 30% profit and RD$485 represents the final sale price.

Another strategy is to take our total cost RD$189 and multiply it by 2.5, that is, two and a half times its cost (there we are covered if we damage any material and we have to remake the product, we also cover the profit margin with 20%) and the profit we want, RD$189.93*2.5=RD$475

And later you can apply this same formula for your expansion and know what cost the machines represent in the production of some custom, some new personnel, new processes, etc.

Remember that this is a way to calculate your costs , so that you can take control of your business and taking into account that those profits are going to be reinvested in your business, another option is that from your costs, you know your market and the prices of your competition so that you can better adapt yours.

Emi Group RD

Desde 2017