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Money Smarts
Chapter 22 Money Smarts: Pricing
A merchandising business buys goods,
marks them up, and sells them to customers. Establishing selling
prices in this type of business is relatively simple.
A manufacturing business buys raw material
or processed goods which it transforms into finished products.
Establishing a selling price is a little more involved than
in a merchandising business. You have to consider the cost
of labor and materials that go into making the product.
A service business is similar to a manufacturing
business in that you have to determine how much you are going
to charge for your labor in order to make a profit. This exercise
focuses on a service business.
SCORE® “Counselors
to America’s Small Business” is a nonprofit association
that provides guidance to small businesses nationwide. Go
to SCORE's
60-Second Guide to Developing a Pricing Strategy.
Read the article and answer the following
questions.
- How might an entrepreneur find out what rates and fees
are being charged for services that are similar in nature?
- Why is it important to learn the story behind these prices?
- What do many first-time entrepreneurs base their hourly
rate on? As the business person gains experience, what might
be another way to arrive at a price?
- What are the extras that must be considered in establishing
an hourly rate?
- What are some factors you should consider to keep your
prices current?
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