how to price your products right?

[siavash]

One of the most important things selling a product online or offline is pricing your products. i wonder if you too have had this complication and got yourself confused over it! or rather it is a simple matter and i'm being a thick nutter!

 

it goes like this:

 

I want to price my products given these elements using my spreadsheet: (so i need to work out a formula! i use EasyPopulate to feed data into my store, so excel is obviously very handy)

 

- product cost (what i pay the supplier)

- transaction charge (% of total amount of the transaction handled by my bank+PSP)

- shipping/delivery and handling charges

- GP (my Gross Profit)

 

i have come up with this but i'm not quite sure it is correct!

 

to determine the price i use my GP as the main variable . eg. i would say if i want to make say 20% GP on the XYZ prduct what should be the price given the above variables. FOR SIMPLICITY LET'S LEAVE OUT OVERHEADS AND OTHER COSTS FOR NOW!

 

P = Price (excluding VAT)

C = product cost

T = transaction charge in %

D = delivery charges

GP = gross profit in %

V = VAT %

 

the formula i have come up with is ( after // is only comment):

P = C + GP ( in $) // this simply the: price = cost + profit

P = C + D + TV (P + D) + GP (in %) P // costs include Del and cost of credit card transaction and further i have substituted GP with GP% as GP($)=PxGP(%)

P - TVP - GP%) P = C + D + TVD // arranged the variables

P ( 1 - TV - GP% ) = C + D + TVD

 

=> P = [C+ D ( 1 + TV )] / ( 1 - TV - GP% ) // the formula!

 

meaning: if you buy your product @ ?80, charge the customer ?10 for delivery and handling and have to pay your bank/PSP/payPal or whoever say 3% of the total amount of the transaction, to make 20% gross profit you should set your price (excluding VAT, if VAT = 17.5 %) according to the above formula at : ?113.30 ?

 

P = [80 + 10 ( 1+ 3% * 17.5%)] / (1- (3% * 17.5%) - 20% )

P = 90.05 / 0.79 = ? 113.30

 

Is this correct? how else would you guys calculate your prices? any comments would be appreciated.

 

cheers.

[siavash]

sorry just a correction of the above formula:

 

P = (C + TDV + TD) / (1-TV-T-GP%)

 

PLEASE TEST IT AND COMMENT . THANK YOU.