Download PDF The Secret to Increasing Your Profits - An Introduction to Beakeven Analysis

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Perception-or, as it is more commonly referred to in business, perceived value-is one factor most entrepreneurs use to determine product pricing.

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After all, our products are our children. We create them, nurture them, grow them and love them. And often we perceive their value to be much greater than the market perceives it to be. It's all about the perception of value. Functionally, both are watches and both perform the exact same function: They tell time. Why then does one sell for a thousand times more than the other?

Secrets to Pricing Your Product

The answer is because it has perceived value. An expensive wristwatch cannot make you better-looking, smarter, healthier or more popular with the opposite sex. Establishing a good price point from the beginning is vital, because it's much easier to lower prices than to raise them. So it's better to start high and adjust down, if needed.

Break-even (economics) - Wikipedia

There really is no rule of thumb when it comes to raising prices. Prices are never set in stone, and consumers expect them to change with the times. You might raise prices to cover an increase in the cost of manufacturing and other production costs, or in response to market demand the greater the demand, the higher the price.

You can also justify a price increase when you improve a product's quality, features and benefits. The buying public is generally price-conscious, but if you can show that the value of your product has increased by the addition of new features and benefits, then the public will usually not balk at an increase in price. Keep in mind that price increases should be done in small increments over time, not by significant amounts overnight.

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April 2, 5 min read. Opinions expressed by Entrepreneur contributors are their own. More from Entrepreneur. Brittney's a Certified Financial Planner who can help you manage your business and personal finances and navigate the ups and downs of starting a business.

Book Your Session. Jumpstart Your Business. How we choose to price our products plays a big role in their long term success. Breakeven analysis is a tool that product mangers can use to expand the pricing discussion to include sales quantity. Product managers who can do this will have have found yet another way that great product managers make their product s fantastically successful.

Subscribe now: Click Here! So what do product mangers mange? Specifically, your current margin would always be changing. Maybe define CM as the average for the previous month to nail it down temporarily, but keep adjusting it over time? Robin: good question. Instead you need to view your software development costs as fixed costs. Your variable costs are going to be minimum for each unit sold really minimum if it can be downloaded — no shipping! Great news. However, remember that the software biz has huge fixed costs also that need to be paid for — but this is not to be included in your pricing.

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However, let me take a try at answering what I think that you are asking. A fixed cost is a cost that does not change based on how many copies of your product you make — such as if you buy a machine to stamp metal. You are right in classifying the Programming of the software as a fixed cost.

Ajith: You make several very good points. Therefore, it really should play a minimal role in your pricing! The decision to spend the money to do the work needs to be based on how successful you think that the product is going to be. If your profits will cover your expenses, then go for it!