VIDEO: Consider Your Costs When Pricing Your Product

by QuickBooks

1 min read

Small business owners often wrestle with how much they should charge for their products or services. For those that run product-based businesses, there are more intricate factors at play, including the business’ costs of materials. These not only include the material type (e.g. plastic, wood, metals), but can also include intangible factors, like the material’s or whether it’s plentiful or scarce. Sometimes these choices are determined exclusively by economic necessity. At other times, ethical considerations, like patriotism and the environment, come into play. Whatever the motivations may be, you and your customers need to be comfortable with your costs.

As Hawaiian Gun Rack president and Big Kahuna Dennis Kahn explains, his retail price points can fluctuate based on the costs of raw materials in the market, most notably wood and bamboo. Dennis creates hand crafted, environmentally sustainable surfboard racks from wood that he imports from overseas, and manufactures his products in the U.S. Bamboo, says Dennis, tends to be more expensive, but is also more ecologically sustainable. For him, setting a fair retail price is about finding a sweet spot between creating an environmentally-friendly, American-made product that is also cost-effective for him in the long-run.

Many factors can affect the costs of raw materials (e.g. climate, regional market stability), and small business owners who manufacture products should always be aware of how to deal with these unpredictable elements. The first step is to treat your vendors with respect, which will make your negotiations go smoothly. This can help you maintain a consistent price point for your customers, but the challenge doesn’t end there. Keeping costs down comes down to tracking your finances as closely as possible, so that you’re not wasting money. That’s something you can do with the help of a trusted CPA or financial management software. While you can’t control every factor that affects the price of goods and materials, you can certainly make preparations that protect your cash flow. Once you do, your business can move forward—at any cost.

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