Pricing the product

Once again for your convenience I republish the materials I have written for the portal Product of Croatia

We are starting some serious stuff now. We have everything we need for our business. We have a perfect idea, we have the money, we have the knowledge and we are off. Full steam ahead. We are ready to make big bucks. Our product/service is perfect and everybody will want it. Everybody will… wait a second. We have to determine the price. Now that is a problem.
Let us start from the beginning.
First we have to use an accounting method to determine the cost of the product. What is the cost of the product? Simply put the cost of the product is direct costs of that product to which we add some indirect costs. Sounds complicated? I'll try to simplify it. Direct costs are those costs for which we certainly know that they influence the price. In case of production those would be equipment expenses, people who work there, space where the work is done etc.
Indirect costs are little bit more complicated. As the name itself says they influence the total price of the product but not as much as direct costs. For instance indirect costs would be the services of the security staff. We can't say it directly affects the product, but we have to cover those expenses somehow. That is why there are various methods of allocating indirect costs in order for us to know how much they affect the total cost of the product.
The simplest division is in case you have only one product and you simply divide the indirect costs with the number of units and allocate it that way. In case you have many different products it gets harder to do it. I suggest you ask an expert if you are not sure how to do it. That much about finding out the cost of the product.
But there are other factors that affect the price of the product. The price also depends on the market. Maybe there is already similar on the market and then you won't be able to go with the higher price. If you are first on the market you have to know how much the market is willing to pay for your product.
Of course there are always problems with determining the price. For instance if the competitors product costs 100 kunas, and your costs are 110 kunas you can't sell below 115 kunas. A who will buy your product then if they a cheaper option. Here you can work on some other factors. If your product is of better quality maybe a higher price can go. Or you'll have to cut costs. In that case you have to work on the efficiency of your company. But more on that some other time.