What are the factors to consider when deciding on the price of the products or services offered by a business?  



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Posted on (Answer #1)

There are many, many factors that can be considered in setting the prices for products or services.  Please follow the link below for a very detailed discussion of this issue.  Some of the most important things to consider are:

  • The price of producing the good or service.  To make money, you have to cover your costs.  Therefore, a business needs to consider all of the costs (both fixed and variable) that go into each item sold. 
  • The price the market will bear.  If people perceive that your product is particularly valuable, you can sell it for significantly more than it cost to make it.  In such cases, you might want to set prices based on what customers will pay rather than on what it cost to make the product.
  • What rivals are doing with their prices.  If your firm has close competitors, you may need to consider what they are charging.  You will need to consider whether to match their lower prices, for example, or to refrain from doing so in order to maintain profit margins.

Again, please follow the link below for a much more detailed discussion of this topic.


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