QUESTION: I am in a quandary about how to price my products. Can you please provide pricing options for products and services?

ANSWER: There are a number of pricing options, depending on the type of product or service being offered. Here are some possibilities:

• Cost-plus pricing: This is the simplest method. Just compute the cost to produce and deliver the product or service and then add, for example, 10% for your profit. This method may not always reflect the indirect expenses of rents, utilities, insurance, etc.
• Competitive pricing: This method only considers what the competition is charging and what the consumer is willing to pay. It may not take into consideration your cost of production and delivery or your indirect expenses.
• Rate or project-based pricing: If you are providing a service, you can charge by the hour or offer a flat rate for the project. Attorneys offer these options and the client must decide if a flat rate is preferable to an open-ended hourly rate.
• Tiered pricing: This is where you give the consumer the option of choosing between different versions of the same product or service. As an example, think about buying a car, motorcycle or bicycle. You can choose a basic model or one with all the bells and whistles.
• Decoy pricing: This type of pricing is also known as a loss leader. You price a high-demand item at a discount to encourage the purchase of other products to be used in conjunction with the loss leader.

Regardless of which strategy you choose, the price you charge should recover both your direct and indirect costs of operation, plus a margin of profit.

Your direct costs are those assigned to the products or services you provide. They include labor, marketing and manufacturing costs. Indirect or hidden costs are the day-to-day expenses associated with running the business. They include such items as rent and utilities, loan repayments, cleaning, office supplies and your own salary, to name a few.

Your add-on margin of profit depends on the perceived value you are delivering to the customer. The old adage “You get what you pay for” is still true. If your competition is competing on price alone, you must explain why your price is higher and the added value you bring to the table.

Gray Poehler is a volunteer with the Naples Chapter of SCORE, Counselors to America’s Small Business. To ask a question or request free and confidential business counseling, call 239-430-0081 or log on to https://www.score.org/naples/local-mentors