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Kids Kreative Korner

 

SETTING A COMPETITIVE PRICE

What Should You Charge for Your Product or Service? Here's Some Help.

By Bonnie Drew

There are two basic approaches to price setting that every young entrepreneur needs to understand. The approach you choose depends on the type of product you sell. Are you selling a service or are you selling merchandise?

If you are selling services such as window washing, pool cleaning, and closet organizing, your prices are mostly based on charges for labor. Your main goal is to match or outbid the average rate your competitors charge for the same service. Survey your competitors and use the information to help you decide.

If you are selling merchandise of any kind, you must carefully consider your costs before you set a price. The National Foundation for Teaching Entrepreneurship (NFTE) teaches young entrepreneurs to understand how a product travels from the manufacturer to the consumer and how the cost increases along the way. NFTE calls this the production structure of business. These are the steps in the production process.

1. Manufacturer: Uses raw materials to make a product.

2. Wholesaler: Distributes the product to the stores

3. Retailer: The store where the consumer shops

4. Consumer: The end-user of the product

The important factor to remember is that the price of the product nearly doubles at each level of the production process. For example, it may cost about $1 to manufacture a basket in a basket factory. To make a profit, the basket manufacturer doubles its cost and sells the basket to the wholesaler at $2. The wholesaler has to make a profit, too. It doubles the price and sells the basket to the retailer for $4. The retailer then doubles the wholesale price and puts the basket on display in the store. The final price the consumer pays is $8.

If you are in the business of making gift baskets, you can't beat your competitor's price if you are buying baskets from the retailer at $8 each. NFTE teaches young entrepreneurs to go back up the line of production, skip the retailer, and buy from the wholesaler at $4 or even from the manufacturer at $2. When you are able to cut your costs, you can pass the savings along to your customer and beat the competition.

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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