SME Toolkit Logo
Partner Logo
 Share  Print Version  Email

Methods for Determining Price

Adapted from content excerpted from the American Express® OPEN Small Business Network

You have several different pricing methods available to you. Each has its advantages and disadvantages, and choosing the right technique can be crucial to maximizing your profits. Here are brief descriptions of each method.

Cost-plus pricing

This pricing method is designed to assure that fixed and variable costs are covered and that profit is built in. To use cost-plus pricing add direct and indirect costs to profit to arrive at your price. It is crucial that you calculate all costs when using this method to set pricing because an omission will lead to a reduction in profit.

Competitive pricing

If the market you are entering has an established price and differentiation between products is difficult, you may need to use competitive pricing. If you choose to set a different price in an industry with established pricing for products that are difficult to differentiate between, be sure you can defend the prices you are setting and that an awareness of price among your target market does not make this out of the question.

Markup pricing

Usually used by retailers, it is calculated by adding a specific amount to the cost of a product.

Demand Pricing

If you sell products to a variety of entities who purchase very different volumes of goods from you, you may want to use demand pricing. For example, a manufacturer who sells to retailers and wholesalers will give a better deal to wholesalers for purchasing in greater quantity. Keep in mind that according to the Robinson-Patman Act of 1939 you must charge the same price to all customers for identical products. If you want to offer different prices, you must establish pricing discounts available to any customer who can buy in volume.

To Business Description Toolbox

FAQ's   Introductory Elements   Business Description The Market
Development & Production Sales & Marketing Management Financials

Copyright © 1995-2016, American Express Company. All Rights Reserved.

 Share  Print Version  Email
Comments & Ratings (10) Overall  
  • Currently 3.7/5 Stars.
If you are a human, do not fill in this field.
Click stars to rate.
   Comments are truncated at 1000 characters
What Others Are Saying
Sort by
  • Currently 4.0/5 Stars.
Robertbengly Bengly, Bali, Indonesia  |  October 31, 2016
Thank you for sharing, however it seems that to be a strong company is also need to have a strong team and sometime when we have an idea to expand the business there will be need a strong team and management system,this is just sharing,thank you for your great article and this is one of the important thing is doing the business. visit also us
  • Currently 0.0/5 Stars.
RBS FINANCE  |  October 19, 2016
Are you a business man or woman? Do you need funds to start up your own business? Do you need loan to settle your debt or pay off your bills or start a nice business? Do you need funds to finance your project? We Offers guaranteed loan services of any amount and to any part of the world for (Individuals, Companies, Realtor and Corporate Bodies) at our superb interest rate of 3%. For application and more information send replies to the following E-mail address: (Whatsapp +917289037578 +17274140074) Thank you
  • Currently 4.0/5 Stars.
Alip Iskandar, google, Indonesia  |  August 22, 2016
  • Currently 5.0/5 Stars.
Bette Daoust  |  June 23, 2016
Thanks for the great example of a marketing strategy statement, we have been able to use this as a template for our own statement. -Dr. Bette Daoust
  • Currently 4.0/5 Stars.
Abdulkadir Muhammad  |  August 17, 2015
  • Currently 5.0/5 Stars.
Alex Shakaryan  |  October 13, 2014
  • Currently 0.0/5 Stars.
Gopal krishna Debnath  |  November 28, 2013
customer is the focal person of a business, hence he/she should be properly honored and addressed. clear description of the product is very important so that actual customer get the real and to the point information.
  • Currently 5.0/5 Stars.
Sandeep Chandra  |  February 03, 2011
  • Currently 5.0/5 Stars.
Muhammad Hamayun  |  December 09, 2010
  • Currently 5.0/5 Stars.
moqassalamin amin  |  September 01, 2010