Home based business: the pricing issues

Whatever be the home based business youre into, the most significant thing, that determines whether things will go right for you or not, is your pricing strategy. And being able to come up with the most suitable price is one of the most challenging tasks that you will face in your home run business.

Too low a price is also not a wise thing to do as your products may be looked upon as cheap brands. So if youve been thinking that you will be able to build a bigger market share by reducing your prices to a very low level, you must keep in mind the negative impact it can have on the image of your business.

Now that does not mean that you can take your price to high, as this would mean that the customers will turn your products as being expenses and the will look around for better priced products.

These two statements can leave any home business owner in a real quick fix situation, wondering as to how he should price his products in such a fashion so as to get maximum positive results. Here is some help for those home based business owners who are finding it difficult to decide what should be the right pricing strategy for their products or services.

The first thing that you must do is to find out the pricing strategy of your competitors. You might want to start by giving fake calls to the competitors to inquire about the prices of his products or service. If it is a product you can even check with the rates that he may have advertised or by picking up some stuff from where he has put it up for sale. You must collect the price information for two to three competitors and put it down into the form of the table so as to be able to make a better and easy comparison.

If your business is in a field, where price is not an important factor you can try to price your product based on the average of your competitors prices. And if pricing is an important factor that will determine the success of your business then you must advertise using comparison tables to show the customer how your price is more effective and more reasonable. But be careful as some of the industries do not allow such comparison tables to be used in the advertising material.

Charging the lower price is not always the most workable pricing strategy, and in certain businesses keeping your price slightly higher than your competitors price can bring about much more customers to your business. The price of a product is often equated with the quality of the product, and a low price may qualify your product as being of cheap quality. Sure, you do not want that kind of an image for your product and business. In todays world the products that people use are very closely associated with their status in the society, so most people want to use better priced products to build up their status.

Now lets move our attention towards one of the most commonly used, and quite effective method of arriving at the best price. It is known as the cost plus time plus margin price estimation method.

To begin with your calculations you must first workout on the cost that you incur on making the product. The cost can be calculated by taking into account the amount of raw material, the overhead costs which are the operating costs of your business, packaging and distribution costs Etcetera. The overhead costs will be required to be spread out over your production quantity with in that time period.

Once you are done, you should have some correct figures, in your hand, about the kind of costs that go into making each unit of the product. Now to this figure you must add some amount which can be looked upon as the charges for the amount of work you have done to produce this product. The charges for your labor should be reasonable enough dont underestimate or over estimate this.

The next consideration is including charges for the amount of time that has been spent to that is how many were hours have gone into produce each unit of the product. The hourly rate that you choose should be some satisfactory number which can justify the labor charges; especially it should be something above the minimum wage. You could also calculate this by assuming that if you hired an employee how much would you have paid him on a daily basis to produce a certain specific number of units of the product.

This estimation will also help you to find out the ways in which you can produce more number of units within the same time by employing a different method.

By now you have the first two ingredients of pricing ready and it is time to consider the third and the last ingredient to be put in. You need to add to this total a certain percentage of profit-margin, which should typically be between 30 to 50 percent.

By adding all these three you will have the most suitable price for your product and this is the price which you should use for comparison with the competitors price.

At times you may realize that the amount of effort or work that has gone into producing a product increases the market price to a level where there are no buyers for it. And selling at a lower price would not get you the right value for the hard work that has gone into making it. At times you may also want to price a product high just because you have the emotions attached to it. But in such situations you must start accepting facts and make your products in such a way that they can be sold for a very well accepted price, by the consumers.

The last thing to keep in mind is that most buyers would like to bargain on the price, so you must use your personal skills to tackle such bargaining, and try to convince them that they are getting a much better deal for the same price.

Hope that this article will help you decided on the right pricing strategy for your home based business products or services.