# How to get srp prices?

**Answer # 1 #**

Add together ingredient costs and manufacturing costs. Then calculate an additional 4% for marketing and advertising costs. Calculate company cost to stores by adding 40% for company profit of the ingredient + manufacturing + marketing & advertising costs. Calculate SPR per package by adding 35% for store markup.

**Answer # 2 #**

This is always a question I hear from new business owners: “How do I price my products easily?” Where do you start?

It starts with reliable financial reports. It’s either the one you already have, or those from your competitors. From these reports, you can use accounting to get on track for a profitable pricing strategy.

How do you do this? There are two commonly-used methods to create those price tags.

This is the most common way to price your product easily. You simply get the total of all costs of producing one unit of your product or service.

What should be included in the cost of your product?

If you’re into manufacturing products, your costs will include all direct materials and labor needed to create the product.

On the other hand, if you’re a retailer or reseller, you will include only the amount you paid for the product.

But, how about for services?

Determining the cost of services is a little tricky. Go through your service routine and the costs you incur along the way. The graphic below shows a hypothetical example of how to figure the costs of a repair service:

Margin will then be added to the cost of product (or service) to determine the appropriate pricing.

Markup is the difference between a product’s cost and its selling price. Generally, depending on the industry, it is expressed as a percentage of cost.

Margin (also called Gross Profit) = Selling price – Cost of goods sold.

Margin and Markup move in tandem. For example, a 40% markup always equals a 28.6% profit margin, 50% markup always equals a 33% margin.

You have a business of creating wooden furniture chairs. You determined the following costs:

Wood costs: $100Labor and materials: $40Total Cost: $140Desired Markup: 40%

Your selling price would be computed as: $140 X 140% = $196

In the example above, gross profit is $196 – $140 = $56.

Expressed as percentage: Margin is Gross Profit ÷ Selling price = .286 = 28.6%.

Using the example above, let’s say we want the selling price to give us a 40% margin.

Using simple algebra:

Selling price (SP) – Cost of goods sold = Desired Margin1(SP) – $140 = .40(SP)1(SP) – .40(SP) = 140.6(SP) = 140(SP) = 233.33

We’d sell it for $233.33. Our gross profit is $233.33 – $140 = $93.33.Expressed as a percentage 93.33 ÷ 233.33 = 40%.

As you can see, the calculation for markup is a little easier to perform than the calculation using margin percentage.

But once you know what profit margin you want to achieve, you can always use the same markup calculation.

Target Costing is the opposite of Cost-Plus pricing. Instead of starting from the costs to determine the price, here you start with the market prices in order to determine the limit of the cost you can use to create the products.

How do you determine the market prices?

Use the average. In this digital age, it’s so easy to snoop around the online stores of competitors. From there, you can get a rough estimate of how much the average market prices are.

If you have a unique product, consider similar products. Otherwise, you will become a price maker, that is, you can dictate the price in the market.

From the market price, deduct your desired profit margin, and then the remaining portion will be your target cost.

You have a business where you make dog cages. The average market price is $200 in your area. What should be your target cost?

Average Market Price: $200Target Margin: 50%Target Cost: $100

Therefore, the maximum amount you can use to produce each product is $100 only. Spending more than $100 will reduce your desired margins.

There is no fast and easy way of determining the appropriate margin. In general, however, a margin of 40-50% is the standard.

There are those that use the Price Multiplier Method. They simply multiply the total costs by 2 (100% markup or 50% margin) or by 3 (200% markup or 67% margin) in order to determine the mark-up they will put on their products.

Otherwise, you are limited by how much the market can bear. The more common your product is, the lesser margin you can place on your prices.

If you’re into retail prices, you can check out the Suggested Retail Price of the manufacturer. This is usually the easiest and safest way to price your products. You just go with the prices, knowing that other businesses selling the same products have the same price tags.

Once you determine the right margin, you can price your products easily.

There are several other pricing computations, but they are more complicated than this. But, what’s a business without challenges? At least now you are more knowledgeable about pricing your product. Improper pricing could spell doom in your business.

**Answer # 3 #**

Why would a company purposefully sell items at the same (or different prices) only to average the selling prices later for reporting purposes?

The short answer: The average selling price can reveal a lot about the health of a company.

Business executives and investors pay close attention to the average selling price because it is a reliable indicator of a company’s financial performance. In most cases, the higher the average selling price of a product, the better. But in some cases, like start-ups or businesses making a come-back, a low average selling price can be a smart, short-term strategy to penetrate the market.

In this short guide, you’ll gain a better understanding of the average selling price and how to calculate it for your business. But first, here is a quick refresher on selling price.

Selling price can also be known as market, list, or standard price. And the following factors help organizations determine the selling price of their products:

Depending on the type of business you own and the offerings you sell, you might prioritize one of these factors over the others. The average selling price can act as a summary of these factors to help you determine the price you should assign your product.

For example, electronics have a higher average selling price than books. Alternatively, electronics typically have a shorter product life cycle than books. Take the 1st generation iPhone and the J.K. Rowling novel, “Harry Potter and the Deathly Hallows.” Both products came out in 2007.

The iPhone and the seventh Harry Potter novel have different life cycles. The 2007 iPhone’s product life cycle immediately shortened with the release of the 2008 iPhone 3G. While it could be considered a collector’s item, its function is effectively useless after years of new devices and software updates. The novel, however, has an infinite life cycle. As long as people are reading, its product life cycle continues.

Using this information to determine the average selling price is important because it allows your company to create a sound marketing strategy when bringing products or services to market.

Your company can use ASP to:

If you are entering a new market, you need an idea of how to price your products or services. Using average selling price facilitates this process. Once you calculate this metric, your company can use this information to set itself apart as a luxury or value retailer. Based on the ASP, increasing your prices can give your company the appearance of premium products; however, this higher cost can lead to fewer sales. Alternatively, if you set your cost below the ASP, your company might sell more but deal with smaller profit margins.

Using an average selling price will help your company identify trends in the market. Let’s use headphones to demonstrate this. Say a company like Bose released a set of headphones for $300 last year, and they made 150,000 sales. This year, they released their newest pair at $250 and sold 250,000 units. Although the company dropped the cost of their product, this decrease incentivized more customers to make a purchase and led to a $17.5 million increase.

If a new or existing company was preparing to launch a new product in this industry, identifying this trend could expedite settling on a market price.

Do you keep a product, or do you scrap it? The average selling price helps your company decide. If you increase your selling price due to ASP and notice a drop in sales, that is not necessarily surprising. Alternatively, if a decrease in your price still leads to a fall in sales, it is time to pay attention. While multiple factors could be at play, ASP will ultimately help you decide if you need to work on a strategy for the product or remove it from your catalog.

Pipedrive, HubSpot, and Salesforce are three of the top sales tracking software tools in the industry. Instead of calculating your average selling price in a spreadsheet, these tools make the process easier.

When using HubSpot’s CRM, first, make sure you look at deals that closed in your desired period. The data you need is the sum of the total revenue from the closed-won deals and the number of units from the closed-won deals. To find the average selling price, divide the sum of the total revenue by the total number of units.

If you are not using sales tracking software, the average selling price is still painless to calculate with spreadsheet software. When using this tool, add up all columns with your sales revenue numbers, and divide by the number of units sold.

Now that we understand the average selling price and how to calculate it, let’s apply this concept with the actual selling price and apply these formulas to a scenario.

For example, we have determined that the average selling price for Android smartphones is $261. Let's say you’re trying to determine a price for your new state-of-the-art cell phone. You would likely price your product above the average to stand out as a high-tech phone provider.

But how much is enough — or worse — too much? Luckily, you won’t need to guess this number. A simple formula can calculate the actual selling price of your mobile phone.

Let's define the key elements in the formula.

The actual selling price can tell you how much to price your high-tech cell phones. Once your product life cycle is nearing completion, you can calculate the average selling price of your luxury phones to see how it compares to the price you sold them for and the average selling price of basic, low-tech phones.

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If your business purchases inventory in bulk and sells it, you’ll want your selling price per unit to be higher than what you paid to turn a profit. Otherwise, you’ll break even on revenue. While that’s not as bad as losing money, it’s certainly not as good as making it.

For example, Hot Pie's Bakery Supply needs to calculate the selling price for its product line of bread machines. The business purchased 20 bread machines for $3,000.

Now it’s time to plug the numbers into the selling price formula. The cost price for each bread machine is $150, and the business hopes to earn a 40% profit margin. Here is what the selling price formula would look like in action:

Selling Price = $150 + (40% x $150)

Selling Price = $150 + (0.4 x $150)

Selling Price = $150 + $60

Selling Price = $210

Based on the formula, Hot Pie's Bakery Supply has a selling price. Each bread machine will be sold to buyers for $210.

Let’s fast forward one quarter. Hot Pie’s finished the quarter with $20,000 in revenue. The business leaders want to know the average selling price of Hot Pie’s bread machines.

Total revenue: $20,000

Number of products sold: 20

Here’s the formula for the average selling price in action:

Average Selling Price = $20,000 ÷ 100

Average Selling Price = $200

This is an example where the actual selling price and the average selling price don’t match exactly. It happens for several reasons, like introducing a lower-priced sale item to sell inventory faster or an unplanned discount to smooth over a customer interaction. It might also occur if you don’t account for selling price factors.

Both actual and average selling prices are critical to telling the financial story of a business. If the pricing is not based on what a buyer is willing to pay or competition in the market, you may end up with a pricing strategy that doesn’t make you money. With the correct selling price in place, your business can earn a profit and win over loyal customers along the way.

Editor's note: This post was originally published in April2019 and has been updated for comprehensiveness.

**Answer # 4 #**

This is why a retailer is more likely to price a product at $19.99 rather than $20.00.

Customers are more likely to make a purchase when it is $19.99 because our brains tell us — “This is less than $20.00? it’s a bargain.” Other industries tend to use this technique, such as those in real estate. You can try it yourself.

Take the previous price of $62.50. Would $59.95 be the more enticing price that leads to higher profits?

If your pricing strategy and your competitor’s pricing strategy are the same, then it’s like missing out on utilizing a helpful tool.

Like it or not, customers infer a lot of information about your business from your prices. Another thing — the results of price changes are not always linear. For example, a company could raise its prices by 1% and see overall profits increase by far more than that, even if demand remained the same.

The best strategy you can apply is a flexible one.

For example, WTMWB (What the Market Will Bear) is better during short periods when you need to recoup costs quickly, such as releasing a new SKU after a period of R&D. Cost-plus pricing is how to calculate selling price per unit. In contrast, GPMT helps you decide if this approach can scale up.

Once you come up with a suitable price, you can apply most significant digit pricing.

Commit to changing your price for a set minimum time and stick to that plan. Don’t keep changing prices, as this could reduce your customers’ trust in you.

Let’s use the example of furniture manufacturers to illustrate the steps to finding a pricing strategy.

You know your manufacturing costs and resources spent, but is this enough to add a markup and call it a day? No. Pricing is contingent on the current state of the marketplace and where your products fit into it.

First, you need to understand your market.

Do all the research you can on the criteria of furniture pricing. These could be:

You need to figure out how your product fits into the current landscape.

It’s good to set a minimum price that you will not go below. If you think of boundaries like this, it helps you think clearly in the stressful tasks of pricing and negotiation. Don’t undersell yourself or go below your minimum price.