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KIDS KREATIVE KORNER

 

WHAT IS YOUR SELLING PRICE?

Setting a Price is Often Hard to do. But Bonnie Drew Can Help.

By Bonnie Drew

PART ONE

One of the trickiest problems of business for young entrepreneurs is setting prices. Making a profit in your business depends on setting your prices high enough to cover your expenses and time, yet low enough that the customer feels he's getting a bargain. That's hard to do.

Steve Mariotti, president and founder of the National Foundation for Teaching Entrepreneurship (NFTE), offers four steps to follow:

1. Define One Unit of Your Product--That's easy if you're selling ties or watches. One "unit" is one tie or one watch. But if you're selling cookies, one unit is harder to define. Is one unit one cookie? Four cookies? A dozen cookies? Each variation of your product requires a separate analysis of its unit price.

2. Calculate the Exact Cost of Goods for One Unit--If you buy candy by the bag, determine the cost of one piece of candy. If you're selling muffins, figure out what it costs to make a batch of muffins. Then figure how much one muffin costs.

3. Set the Selling Price--Mariotti teaches young entrepreneurs to double the cost of goods to get the selling price. So if the cost of goods for one watch is $5, the selling price is $10. The gross profit (profit before operating expenses) on each watch is $5.

4. Determine Your Net Profit--Operating expenses such as telephone, advertising, and office supplies indirectly contribute to the cost of producing your product. Estimate your average monthly operating expenses and divide by the number of watches you sell per month. This gives you the per-unit operating cost for each watch. Calculate your net profit by subtracting the per-unit operating cost from the gross profit on each watch.

For example, if the per-unit operating cost for each watch is $1, subtract $1 from your $5 gross profit. Your net profit is $4 or 40%, a respectable per-unit profit that anyone would be pleased to make. Now you know that $10 is an acceptable selling price for your watches.

NEXT ISSUE: More on setting prices.

Bonnie Drew is the author of FAST CASH FOR KIDS (2nd edition), published by Career Press (1-800-227-3371). She is also the creator of the KIDS BUSINESS software for young entrepreneurs, available from Homeland Publications (713-332-9764).

Drew is also Editor of YoungBiz online magazine, published by Kid's Way, Inc., a company that helps youth prepare for business and the workplace of the 21st century. For more information, write to Kid's Way at 5589 Peachtree Rd, Chamblee, GA 30341 or call toll free 1-888-KidsWay (1-888-543-7929). YoungBiz magazine can be found at http://www.youngbiz.com

 

      

         

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