“In spirit, pricing should ensure that you will survive”
There are multiple internal and external factors that need to be considered, and there is an important need to identify the pricing objective, before actually getting into finding the price.
Start asking yourself – What is my product/ service positioning (luxury product at low price could actually impact your image)? How will changes in price impact demand for my product/ service (do some market research)? How much are the COGS and the Fixed Overheads related to my product/ service (Gross margin should be sufficient to cover overheads)? What are other external factors that can impact my pricing (such as regulatory compliances, competition etc)?
Once the above stated questions are asked, identify the pricing objective – Short-term Profit Improvement (cash crunch situation), Short-term Revenue Improvement (expanding the market share now, and reaping the benefits in future through economies of scale and scope), Profit Margin Improvement (Low/ unpredictable Sales situation), Quantity Improvement (creating a future demand by making masses habitual to product/ service now || also, take advantage of economies of scale in future), Differentiation Creation (Low/ High Price Product/ Service), SURVIVAL (Intense competition).
As you know what exactly you want to achieve, now, choose the appropriate model (Cost-plus: Price equal to Cost plus Margin, Return Based: Price proportional to the ROI created for customer, Target Return: Price set to achieve target ROI, Perception Based: Price set at a level which is perceived as “fair price”).
“Remember, your price should always be higher than your cost, never be higher than market perception of “fair price”, and most importantly, definitely be enough higher to cover cost of normal variations in sales volume”