Pricing Your Product: Margin Calculator

Now that you have created a quality product, decided where to make it, gotten licensed, and packaged it with a catchy, professional label that includes its ingredients and a nutritional panel analysis, there is one last strategic decision you must make before making a sell: its price. For most stores and consumers, the only thing that matters is the price. If you plan to turn a profit, you need to price your product appropriately. This is easier said than done; by the time the consumer is finally provided the opportunity to buy your product, many parties—distributors, brokers, and retailers—will have significantly increased its price. In fact, some products are sold to your customer for more than 100% of what you originally charged.

Keep your long-term pricing strategy in mind while determining your branding and packaging decisions. Distributors must mark-up for their service; retailers, too. The freight carriers and distribution centers have to charge. Sales, marketing, and promotions contribute to the price. Then there may be other “hidden charges” that consumers pay for when they buy your product. Brokers, merchandisers, additional sales costs, shrinkage, advertising, various retail fees, taxes, and more must be taken into account when determining your price. If you are planning to sell your product in other countries, don’t forget costs associated with special packaging, customs and duties, and currency fluctuations outside the US. There are as many levels of margin, mark-up, fees, and commissions, as there are entities associated with bringing your product to the consumer. Study the market to determine the ins and outs, what works and what doesn’t, and how to price your product for profits while giving your consumers a good value, without losing it all in the process.

When it comes to pricing, short term thinking is fatal. You should set your price where you think it will need to be in future years, right from day one. This will allow you some flexibility to offer introductory pricing and periodic “sales”. This strategy also provides a little more income as you launch your product, enabling you to invest in your company’s growth, and it sets the fair value for your product.

The pricing calculator below can help you put your theory into practice, and walks you through determining your break-even threshold.