MAKING SURE THE
PRICE IS RIGHT
KNOWING YOUR COSTS
Fixed &
Variable
costs
VARIABLE COSTS
Anything that changes based on the unit sold
¡ Commission per unit
¡ Direct material per unit
¡ Shipping...
FIXED COSTS (OVERHEAD)
Things that stay the same regardless of volume
¡ Communications
¡ Tax
¡ Licenses
¡ Administrati...
BREAK-EVEN
Number of units that need to be sold for total
revenue to equal total costs (fixed and variable)
Break-even poi...
BREAK-EVEN: GRAPH
Break-even
point
Cost and/or Return ($ Thousands)
14000
12000
10000
Variable Costs
Fixed Costs
8000
6...
BREAK-EVEN: EXAMPLE
In a month, company sells 1,200 widgets for
$10 each. Fixed costs total $5,000, with a cost
of $5 per ...
BUT I WANT MORE…
If you aren’t happy with your profit:
¡ I ncrease sales
¡ L ower costs
§ Fewer employers
§ L ess rent...
HOW DO YOU
CHARGE MORE?
Basics of
pricing
strategy
WHAT YOU NEED TO KNOW
¡ Who is buying your product?
¡ Who are your competitors
¡ How, or will, negotiations occur?
¡ W...
PRICING PYRAMID
Objective
Strategy
Model
$
PRICING OBJECTIVES
What does
your price
need to
accomplish?
WHAT SHOULD YOUR PRICING DO?
¡ Maximize Profits
¡ Maximize Revenue
¡ Maximize Market Share
¡ Reinforce brand perceptio...
PRICING STRATEGY
How are you
going to
accomplish
the goal?
HOW DO YOU REACH YOUR OBJECTIVE?
¡ Cost Plus
§ Based on understanding measurable costs, plus profit
¡ Competition-base...
PRICE/QUALIT Y DIFFERENTIATION
Low
Quality/Differentiation
High
Low
Economy
Penetration
Skimming
Premium
PRICE
H...
FACTORS IN PRICING (1 OF 2)
¡ Market maturity
§ Younger market = more flexibility
§ Mature markets = more pressure, lim...
FACTORS IN PRICING (2 OF 2)
¡ Value
§ Price = what buyer pays
§ Value = what buyer receives
§ Set by image, word-of-mo...
PRICING MODEL
How is
it sold?
COMMON PRICING MODELS
¡ Per unit
¡ Per user
¡ Per usage
¡ Per unit of infrastructure
¡ Subscriptions
ART OF PRICING
What feels
right?
FINDING BALANCE
¡ No 100% correct answer
¡ Difficult to optimize for all segments
¡ Find the equilibrium
§ Don’t leave...
NOW WHAT?
Factors to
keep in mind
YOU SET YOUR PRICE. NOW WHAT?
¡ Keep an eye on the competition
§ Pricing should align with positioning
and functional di...
ASK AWAY
It’s time for
questions.
of 25

How To: Pricing

Everything you need to know about pricing from the marketing experts at Adashmore Creative. This slide deck will help figure the basics of a pricing strategy, such as figuring out your costs, how to charge more, pricing objectives, and factors to keep in mind.
Published on: Mar 4, 2016
Published in: Business      Economy & Finance      
Source: www.slideshare.net


Transcripts - How To: Pricing

  • 1. MAKING SURE THE PRICE IS RIGHT
  • 2. KNOWING YOUR COSTS Fixed & Variable costs
  • 3. VARIABLE COSTS Anything that changes based on the unit sold ¡ Commission per unit ¡ Direct material per unit ¡ Shipping per unit ¡ Supplies per unit
  • 4. FIXED COSTS (OVERHEAD) Things that stay the same regardless of volume ¡ Communications ¡ Tax ¡ Licenses ¡ Administrative staff ¡ Rent ¡ Utilities
  • 5. BREAK-EVEN Number of units that need to be sold for total revenue to equal total costs (fixed and variable) Break-even point = Fixed costs / (unit selling price-variable costs)
  • 6. BREAK-EVEN: GRAPH Break-even point Cost and/or Return ($ Thousands) 14000 12000 10000 Variable Costs Fixed Costs 8000 6000 4000 2000 0 Total Cost Income
  • 7. BREAK-EVEN: EXAMPLE In a month, company sells 1,200 widgets for $10 each. Fixed costs total $5,000, with a cost of $5 per widget. Break-even point = $5,000 / ($10-$5) = 1,000 At 1,000 widgets, the company covers costs. Additional 200 widgets is profit.
  • 8. BUT I WANT MORE… If you aren’t happy with your profit: ¡ I ncrease sales ¡ L ower costs § Fewer employers § L ess rent ¡ R aise your price
  • 9. HOW DO YOU CHARGE MORE? Basics of pricing strategy
  • 10. WHAT YOU NEED TO KNOW ¡ Who is buying your product? ¡ Who are your competitors ¡ How, or will, negotiations occur? ¡ What do customers think of your product? § Capabilities § Quality
  • 11. PRICING PYRAMID Objective Strategy Model $
  • 12. PRICING OBJECTIVES What does your price need to accomplish?
  • 13. WHAT SHOULD YOUR PRICING DO? ¡ Maximize Profits ¡ Maximize Revenue ¡ Maximize Market Share ¡ Reinforce brand perception ¡ Stabilize the market ¡ Achieve return-on-investment ¡ Become the price leader ¡ Create product interest ¡ Discourage entry of new competitors
  • 14. PRICING STRATEGY How are you going to accomplish the goal?
  • 15. HOW DO YOU REACH YOUR OBJECTIVE? ¡ Cost Plus § Based on understanding measurable costs, plus profit ¡ Competition-based § What your competitors are doing ¡ Value-based § Price in relation to what product delivers § Hardest to quantify § Requires ongoing work
  • 16. PRICE/QUALIT Y DIFFERENTIATION Low Quality/Differentiation High Low Economy Penetration Skimming Premium PRICE High
  • 17. FACTORS IN PRICING (1 OF 2) ¡ Market maturity § Younger market = more flexibility § Mature markets = more pressure, limited flexibility ¡ Product category § Highly innovative products have limited barriers ¡ Demand § High demand = higher pricing § Lower demand = lower price ¡ Competition § Don’t be highest or lowest
  • 18. FACTORS IN PRICING (2 OF 2) ¡ Value § Price = what buyer pays § Value = what buyer receives § Set by image, word-of-mouth ¡ Quality/Perception § Higher prices tend to signal higher quality § Customer ultimately decides ¡ Differentiation § Highly differentiated products = less price sensitive ¡ Brand Premium § High brand equity = higher prices
  • 19. PRICING MODEL How is it sold?
  • 20. COMMON PRICING MODELS ¡ Per unit ¡ Per user ¡ Per usage ¡ Per unit of infrastructure ¡ Subscriptions
  • 21. ART OF PRICING What feels right?
  • 22. FINDING BALANCE ¡ No 100% correct answer ¡ Difficult to optimize for all segments ¡ Find the equilibrium § Don’t leave money on the table § Don’t lose deals to competitors
  • 23. NOW WHAT? Factors to keep in mind
  • 24. YOU SET YOUR PRICE. NOW WHAT? ¡ Keep an eye on the competition § Pricing should align with positioning and functional differences ¡ Educate your sales team § Make sure they understand the differences and how they factor into pricing ¡ Make sure your market “gets it” § It needs to be easy to explain and understand ¡ Review regularly, adjust as needed
  • 25. ASK AWAY It’s time for questions.

Related Documents