Pricing

Price 

A specification of what a seller requires in exchange for transferring ownership or use of a product or service. 

Prices set too low, loss in revenue 

Price set too high, loss in revenue 

Price and demand are related for many goods and services 

 Total Cost

The sum of cost of goods sold, selling expenses, and overhead costs. 

Total Variable Costs 

Costs that vary with the quantity produced or sold. 

Total Fixed Costs 

Costs that remain constant as the quantity product or sold varies. 

Break even analysis for pricing 

A comparison of alternative cost and revenue estimates in order to determine the acceptability of each price. 

Break-even point: the level of sales where all expenses have been met, but no profit has been made. 

Break-even point in units = total fixed costs/[unit sales price – variable cost per unit] 

Pricing system 

Markup Pricing 

Cost plus pricing system that adds a markup percentage to cover: Operating expenses 

Subsequent price reductions 

Desired profit 

Pricing strategy 

1. Penetration

2. Follow the leader

3. Dynamic

4. What the market will bear

5. Liming - facing / lining 

6. Variable

7. Skimming