The Cost Plus Mistake

Many small business owners have trouble figuring out their pricing.  A common method is Cost Plus which is where you add up your business costs and then add a little more for “profit.”  There are a few problems with this method of pricing.  For one, it does not allow for cost increases and too low a price might send the wrong message regarding quality or credibility.  Also, the little more added on for “profit,” is usually too little and profit margin ends up being small or even negative which makes it difficult to grow your business.

A better approach is to consider the value of your product and service to your customers and what they are willing to pay.  If you are not sure, checking out your competition can give you a heads up on what this might be.  Use this number as the high end of your price range and use Cost Plus as the low end.  By establishing the ends of the price range, you now know the minimum you need to charge (so if you want to give a discount, you can) but you also know where to set your price points in regards to the real value of your product and service, your quality message, and effective business growth.


About Ernest Lewis

Ernest is owner of E.A. Lewis Consulting where he helps individuals and organizations achieve their personal best! He provides executive and business coaching services including leadership development, team building, continuous improvement, and strategic planning support. Ernest is also a writer, motivational speaker, father of three, and loves to RUN!
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