You set prices when when you develop a new product or service, when you market to new customers, and when you bid on new contract work. Follow these six steps when setting a price for your home-based business' product or service:

1. Select the pricing objective for your product or service;
2. Determine the demand for your product or service;
3. Estimate the costs for your product or service;
4. Analyze your competitors' prices, products and services;
5. Select a pricing method for your product or service,
6. Select the right price for your product or service.

Each of these steps is described below.

SELECTING THE PRICING OBJECTIVE

First decide how you want your price to position your home-based business. Con- sider pursuing one of the following four major objectives through your pricing:

1. Survival, if your business is plagued with overcapacity, intense competition, or changing consumer wants;
2. Maximum current profit
3. Market-share leadership, if owning the largest market share will result in your home-based business enjoying the lowest costs and highest long run profit (achieved by setting prices as low as possible).
4. Product-quality leadership (achieved by charging a high price to cover the high quality of your product or service).

DETERMINING DEMAND

Each price you charge for a product or service leads to a different level of demand. Therefore, demand largely sets a ceiling to the price you can charge for the product or service.

ESTIMATING COSTS

Costs set the floor for your pricing. The price must cover all costs of producing, distributing, and selling the product or service, including a fair return on effort and risk. Con- sider the following costs:
Cost Per Unit of product. This is a variable cost that is duplicated with every unit of product sold. It includes:

• Cost of the product
• Order processing
• Shipping and packaging
• Postage to mail the product
• Overhead and an allowance for bad debt

Campaign and Overhead Costs. These are fixed costs that vary little with changes in the number of products sold. These include:

• Printed materials (cover letter, brochure, etc.) for a direct mail piece
• Mail preparation to stuff envelopes, sort and mail a direct mail piece.
• Postage to send mail pieces
• Advertising costs for display and classified ads.
• Other marketing costs such as telemarketing, card decks, the Internet, etc.
• Overhead costs such as accounting and office expenses.

ANALYZING YOUR COMPETITOR'S PRICES, PRODUCTS AND SERVICES

While demand sets a ceiling and costs set a floor to pricing, competitors' prices provide an in between point you must consider in setting prices. Learn the price and quality of each competitor's product or service by sending out comparison shoppers to price and compare. Acquire com- p- etitors' price lists and buy competitors' products and analyze them. Also ask customers how they perceive the price and quality of each competitor's product or service. If your product or service is similar to a major competitor's product or service, then you will have to price close to the competitor or lose sales. If your product or service is inferior, you will not be able to charge as much as the competitor. Be aware that competitors might even change their prices in response to your price.

Several pricing strategies are available to you to seek an advantage over the competition:

1. Price-discount strategy: Offer customers a product or service comparable to the leading competitors at a lower price.
2. Cheaper-goods strategy: Offer customers an average- or low-quality service at a much lower price.
3. Prestige-goods strategy: Launch a higher-quality product or service and charge a higher price than the leading competitor.

SELECTING A PRICING METHOD