Pricing: How much are my products and services worth?

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It is one of the main pillars of any business. Pricing policy determines the level of competitiveness of companies and completely conditions the brand image. However, it is not easy to make decisions related to this issue.

It is not enough to analyse the value of a product, or even to establish a sufficient margin to guarantee the payment of costs and net profits. Context has a significant influence on pricing strategy .

In a situation of instability and crisis like the current one, setting prices becomes an even more complicated task. For all these reasons, today at MÁSMÓVIL Negocios we return once again to this concept, observing it from a very particular perspective.

How to set prices
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Pricing: the origin of successes and failures
One of the main reasons why 9 out of 10 startups fail , and why 80% of new japan number data companies disappear within 5 years, is the conception of an erroneous pricing strategy .

The inevitable ambiguity surrounding this question leaves the tons of theory in the academic and business worlds little more than a dead letter. Product pricing is a challenge that every business must face by learning for itself and accepting the mistakes along the way.

" If you raise prices by 5% while maintaining costs and sales levels, you can probably offer generous bonuses to your shareholders ," explains Peter Hsu , AT&T's chief strategy and pricing officer.

" But if you increase prices by 5% and your sales drop by 15%, you're likely to have a completely adverse scenario that's hard to stop ," he adds. " In other words, pricing strategy is essential to optimizing your profits ."



How much is my product worth?
What it costs to produce it, what the customer is willing to pay, what the competition estimates its products are worth. Correct pricing is synonymous with a perfect balance between the interests of all stakeholders .

When talking about Pricing, any approach is valid, as long as the main contextual facets are considered.

The manufacturing price
Labor costs associated with each unit .
The division of the total marketing price by the number of units.
Rents, fees and taxes, and other indirect expenses .
Financial costs.


Rafael Muñiz , a professor at CEF, adds other key factors to the equation: the company's objectives, the elasticity of demand, the perceived value of the product for customers, and the decisions made by the competition .

Success in establishing a pricing strategy therefore depends on the company's knowledge of itself and its environment, on the defined brand strategy , on the characteristics of its target audience , and even on the trends of each market depending on the product.



How to price a product: ignoring context as a starting point
Pricing will always vary depending on the situation and needs of each company, but to estimate the final rate one can start from purely academic theory, and from there make the appropriate projections.

Thus, the Theory of Prices , by the economist Milton Friedman , already summarized in 1962 a simple and universal calculation to estimate the objective price of goods and services.

How to price a product
The profit margin is subsequently added to the result of this operation based on the company's interests: percentage margin = profit / total income x 100 .

And what is profit? We are talking about the return on the investment made by the company . That is, the difference between the sale price and all the fixed and variable costs involved in marketing and maintenance.

It is usually recommended to establish the desired profit percentage , so that the rest of the amounts can be calculated later. It will depend on how much you want to earn for each product, based on the company's perception.

Broadly speaking and in reality, companies limit themselves to calculating all the costs and estimating a price that leaves them with a sufficient margin to recover the investment and obtain a profit margin.