What Is The Best Way To Determine Selling Price?

Oct - 31 | By: AHT | 3 comments.

Filed under : Health Insurance

We are a group of student doing a business plan about a software company. However we are not sure how to determine the price for our product. Here is the basic calculation about the fixed cost and variable cost of our company
Fixed Costs
Salaries (directors’ remuneration) $8,000
Supplies (printing &stationery) $1,200
Repairs & maintenance(upkeep of office) $-
Advertising $20,000
Car, delivery and travel $2,400
Accounting and legal& financial charges $3,800
Rent $12,000
R&D Developments $5,000
Utilities $1,000
Insurance $1,440
Taxes (Real estate, etc.) $-
Interest $-
Depreciation $3,900
Medical Fee $-
Miscellaneous expenses $-
Principal portion of debt payment $17,645
Owner’s draw $-
Total Fixed Costs $78,385
Variable Costs
Cost of Goods Sold $45,150
Inventory
Raw Materials
Direct Labor (Includes Payroll Taxes) $24,000
Total Variable Cost : $69,150
Break event Sales level = 76749
We plan to sell the product for $5000/unit. But our teacher query why and how we determine the price. Anybody please answer me how to determine the selling price please. Thank you.

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3 Responses to “What Is The Best Way To Determine Selling Price?”

Chris says:

October 31, 2009 at 5:23 pm

This is part of your market research and planning
Have you researched what other companies are charging for the same unit. That would give you a price and or a sell point of what people are willing to pay for the item. and also tells you how many units you will need to sell to cover your expense. i hopes this helps
Woody says:

October 31, 2009 at 11:07 pm

Selling price should have very little to do with cost. It should be determined by the value your deliver to your customer and your competition’s prices. The higher value you provide the customer, the more they are willing to pay.
Your cost determines your profit, not your selling price.
dusty_ti says:

November 1, 2009 at 12:42 am

Your price of $5,000 per unit is unrealistic – that is; nobody will pay that much for a software package. Before you start your business, you do what is called a “target market” survey. You determine how many business are in a certain field; for example – Fast Food Restaurants – which may be interested in a software package attached to their cash registers that tells how many lunches and dinners are served, and how based on the menu ingredients, how much to order for the next day. This kind of information helps the owner/manager by making sure that the cook doesn’t run out of a certain spice, and maintains a inventory of rotating food stuffs and paper products, etc. You’ve figured out how much stuff is going to cost, in your scenario, but you need to figure out a break price – what your supposed product is worth, and how many units you will be selling. If you price your product too high, no one will buy it. If you go to a large store where software is sold – you’ll see that there is a range between 19.99 and 199.99 for business software. Of course some of it is priced higher, but that’s because it does more, or it allows the business more expanded programs within the main program. I.E. – sales and commissions, payroll, inventory control – incorporation filings, etc. Questions: whats your software do, how many people would want to buy your software, if your market is large, you can mass produce, and thereby reduce the unit price, so that more people can afford it.