TapRun Consulting

The Pricing Newsletter

November, 2017 issue

Hello from Florida!

I've had a busy month, but the show must go on. This month's pricing newsletter should prove to be the best in a long time.

Of course, it's also the first in a long time too...

Pricing question from a reader

Today's question comes from reader E. K.

I keep hearing that costs don't matter when setting prices, but is that really true? Why would anyone set prices below their costs?

You've gotten some advice that's almost right - but not quite.

It's not that you should ignore all costs when thinking about pricing, it's just that you should ignore sunk costs (the money that you've spent or committed) like buildings, equipment and general startup costs.

Spending more money in the past won't give you permission to charge more in the future. Sure, the effects of big spending - higher quality, improved functionality, etc might allow you to earn more, but merely spending won't.

Your customers won't be thinking about how much you're spending when deciding whether or not to buy your products.

That said, you do need to think about future costs - particularly the variable costs (cost of creating each item that you sell).

If the cost of creating a product is above the income that you'll receive from selling it, you'll be best served ceasing business immediately - unless you have some strategic reason to continue, or expect market conditions to change in the future.

While losing money on each sale won't let you charge more, it may tell you that you should reconsider your business approach.

Questions come from readers like you. If you'd like your questions answered, send them my way.

Pricing in the news

Pricing article from the blog

Notable pricing quote

If you are determined enough and willing to pay the price, you can get it done. -- Mike Ditka

Shameless commercial plug

If you'd like to improve the pricing and positioning of your business, you know whom to call, right?

No, not Ghostbusters!

Contact me instead.

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