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ARTICLE · 28 FEBRUARY 2007

The Proper Price Is Truly A Magic Number

The Adjuvancy
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Let’s admit it- we have a problem pricing goods and services. Most of us consider that we use sophisticated analyses- but, it is usually closer to the "back-of-the envelope" methodology. We add in our costs and then figure out how much we need to add on to cover those amounts.

United StatesAccounting and Audit
Roy Ackerman
Roy Ackerman

Roy A. Ackerman, Ph.D., E.A.
The Adjuvancy, LLC.

Let’s admit it- we have a problem pricing goods and services. Most of us consider that we use sophisticated analyses- but, it is usually closer to the "back-of-the envelope" methodology. We add in our costs and then figure out how much we need to add on to cover those amounts.

Some of us have used breakeven analysis based upon various assumptions of market capture; we may feel comfortable falling back upon "scientific principles", but there are other important considerations. Using the breakeven method can cover our costs, but still let us teeter on the edge of bankruptcy, due to volume considerations. As you can see from Figure 1 below, after we start making 10,000 units a month, our breakeven cost is $ 3.80- but that still does not provide the pricing information, per se. So, we pick some multiple for the pricing (120%)- and, as long as the volume holds or increases, our company is profitable.

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