268 Chapter 10 Product, Price, and Place Copyright Goodheart-Willcox Co., Inc. Create an Image Pricing may influence how customers perceive the business or the product. The image of a business or product is how a customer perceives it. High prices tend to create an image of high-end products. Low prices tend to create an image of discount products. Be sure the image set by the pricing matches the image outlined in the business plan. Pricing Strategies Pricing strategies are business decisions about pricing and how prices are set to make a profit. To stay in business, all companies, except for nonprofits, must generate a profit. A pricing structure is a consistent plan for pricing product that achieves the goals of the company. It influences how a customer perceives your product and business. There are many ways to set prices, but they all start with knowing a product’s break-even point. The break-even point is where sales equal expenses. It is often expressed as the number of items needed to sell in order to recover expenses. After the break-even point is reached, the business starts to make a profit. To determine how many units of a product must be sold to meet the expenses, complete a break-even analysis. A simple break-even analysis is: cost × number of units = break-even point selling price For example, a business sells tablet computers and recently ordered 100 units of a new model. Each tablet computer costs $140 to produce. The pricing strategy is to sell the tablets for $250 each. How many tablets would need to be sold to reach the break-even point? Complete the break-even analysis: cost × number of units = break-even point selling price $140 × 100 = break-even point $250 56 tablets = break-even point Cost-Based Pricing Cost-based pricing uses the cost of the product to set the product’s selling price. The first step is to accurately determine the actual cost to the business of the item. If it is a service, consider using the hourly cost of the employee’s time. If it is a good, use the actual cost to produce the item. If you are selling an idea, base the cost on the number of hours spent developing the idea plus your time. Looking for small business counseling and training close to home? The SBA provides small business counseling and training through a variety of programs and resource partners across the country. Resources are available both locally and online. www.sba.gov SBA Tips SBA Tips