Many businesses make their profit by selling items that they have purchased onto customers after a markup. They advantage for the customers is a range and choice of options that the customer could not find themselves.

One of the key things that the business has to do is price the items correctly to ensure that they make a profit on them, there are many methods that are used to price goods and we will discuss some of the advantages of each one.

A business will normally need to sell items for more than what they paid. The gross profit is the amount that remains from the sale amount after subtracting the purchase cost. This gross profit is then used to pay all your other expenses and then anything that is left after that is your “net profit”. Having a large enough gross profit is important otherwise your business will not be profitable overall. This means calculating the price correctly is very important.

It is essential to have the product cost so that you can calculate the sell price. If you are a reseller this is the price you paid for the item plus any other costs to get it to your store. If you are a manufacturer of an item this is the cost directly associated with building that one item.

The following pricing methods are

Mark-up – This is taking the original cost of the item and adding a certain amount to it. This could be a percentage for example a 100 percent mark-up is to double the price. Or else you could add a mark-up of a fixed dollar amount saying that you mark-up items by only 10 dollars. Normally a percentage is used since if you start buying items at a higher price and still only mark up by a fixed dollar amount you will start to notice increased sales but your gross profit may stay the same due to the same number of sales.

Margin – This works in a similar way but it is the amount remaining from the sale price. If something cost ten dollars but you sell it for twenty your margin is ten dollars or 50% of the twenty dollars. The margin percentage is quite often used since people can quickly figure out what their gross profit is from their sales total.

This that you would need to consider when changing your prices.

Will people by more or less of you product if the price changes? Some products has an elastic demand and change with price, some are less elastic such as car repairs. Will changing the price still make them shop with you but shop less compared to them going somewhere else.

How do you compare to everyone else? You don't have to be the cheapest seller, businesses can also retain customers based on product quality and customer service that competitors do not provide. If you are the cheapest seller and raising your prices mean you are still the cheapest seller that means it may be time to raise prices.

When changing prices not everything needs to be changed at the same time. You can select a small section of your products and change only their prices. You can see how you customers respond to these changes. They may not notice or if they do they do not care about the change. They may provide feedback on prices they would pay and if you could offer anything else. You need to pay attention to the changes that happen and respond to that feedback.

If you have an accounting package you would be able to access information regarding the items that you sell, to estimate what sales returns you get. In the United States an accounting product like Quicken may be effective or in Australasia MYOB is effective

I hope this gives you some ideas about how to look at pricing your goods for sale, and gives you some options to try when looking at your prices when selling to your customers.

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