1. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Market study Industry profile Competition profile Customer profile + target market Marketing mix: –Product –PRICE –Distribution –Promotion

2. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Who/what Sets Price? Costs? Competition? Distribution chain (Suppliers, buyers)? Customer value? 19.3 © 2004 Ewing Marion Kauffman Foundation

3. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Pricing Break-Even Point 19.1 © 2004 Ewing Marion Kauffman Foundation

4. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Pricing. 1 st what is my BE? Every dollar received over break-even point goes directly into profits Break-even point Fixed costs BE =------------------------------------------------- Sales price per unit – variable cost per unit

5. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Pricing: 2 nd what is the margin? Gross margin = sales – direct (var.) cost –The margin includes what you take home as profit + what you have to pay on bills. –Percentage = (price – var. cost) / sales

6. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Pricing strategies Pricing strategy Skimming Penetration: discount pricing Competitive pricing Image pricing – perceived value Patronage discounts – quantity discounts Penetration: discount pricing Focus on payment terms, cash Goals Maximize profit Ensure adequate cashflow Increase sales volume Increase market share Meet or beat competition prices Maintain or create a certain image Improve customer relations

7. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Retail Mark up $ retail - $ cost = $ markup Markup %: $ markup / $ retail Retail: Cost / (100% - Markup%)

8. ©2001 Kauffman Center for Entrepreneurial Leadership ™ What do you need to know? Price floor (costs) Ceiling price(savings to buyer, competitors, substitutes, complementary products, perceived value, pressures from distributors and suppliers) How price aware and sensitive is the customer? What is the relation between price and perceived value? 19.3 © 2004 Ewing Marion Kauffman Foundation

9. ©2001 Kauffman Center for Entrepreneurial Leadership ™ Pricing for service business Do your research to find the market price. Estimate non billable time: as a rule of thumb for each 15 days worked 5 need to be devoted to housekeeping. Consider differences between hourly, daily, weekly, monthly rates, or standard fees. 19.2 © 2004 Ewing Marion Kauffman Foundation