Pricing and revenue plan

EhudGer

Hi Guys,
 
As a newbie to this whole exciting world, i started out a few months ago with an idea and have been  planning my business for some time now. I have encountered two main  difficulties in doing so:
 
1. How  does one decide pricing  on a product that, to the best of my knowledge,  does not have any similar/comparable products (and no such market currently exists for that matter)? To give an example how could you decide pricing on a new chip for portable mp3 players that could considerably increase the sound quality?
 
2. Where do i begin trying to plan my revenues/expenses over the next years??
 
I would appreciate any input anyone might have.
 
Thanks
 
Ehud
EhudGer10/11/2007 3:31 AM

CaboBill

Hello EhudGer-
First of all, welcome to SuN.  You will find, as I have, that many of the people you meet here are genuine and love to help others.
That being said, it is quite a perdicament trying to determine what the selling price of a product should be.  For me it is determined by taking the cost of the material to make one and multiply by 5.  If your product is a new chip for mp3 players to improve their sound quality, I would recommend looking at computer suppliers like New Egg and see what they charge for a chip for a computer.  Granted they buy in mass volume and are able to charge less, but it may help shed some light on how much the market will bear.

robertj

I completely understand your dilemma, but I advise my client`s not to use cost as a base for determining the sales price since that approach doesn`t give any consideration to the market. This "derived" price can be  low. For example, the "cost" to make (reproduce) software is usually unrelated to it`s value in the market.
In your example, (a new chip for the mp3 player)  I`d start with the price of the current solution. Then determine if your customer would pay a premium for the additional value provided by your product.
 robertj2007-10-11 12:3:36

GrillCharmer

There are two main schools of thought when it comes to pricing. Competitive pricing basically matches what others with similar products are charging.  You say there is nothing out there like your product so then it becomes a matter of what are people willing to pay.  (Primary Market Research will help determine that.  I can give you an idea of what I did if you want to PM me)  Cost-based pricing is simply calculating your cost of goods then adding the appropriate profit margin. There are industry standards for most products but the very very general easy answer is cost to manufacture x 2 = wholesale x 2 = retail. IE if something cost you $2.50 to make then the wholesale price is $5.00 and the retail price is $10.00. Pricing is far from an exact science.  Experience and supply and demand will tell you if you are too high or too low. If your product start to fly off the shelves and you can’t keep up, that will tell you to raise your price. If you are doing more thumb twiddling than anything else, you might consider coming down. 

 

Regarding the 5 year plan… yep, I actually did one.  I am an excel junkie so I used a combination of the SCORE Break Even analysis and the 12 month cash flow statement and tried to estimate to the best of my ability my costs then plugged in my sales goals numbers. 

 


http://www.score.org/downloads/12_Month ... v_5-07.xls


 

Hope this helps a little!  Good luck!!!

angola

Thanks for sharing, Leslie. Nice