Step 5: Pricing
People with disabilities frequently undervalue their time and contribution to production and development because their self-worth may reflect society’s undervaluation of people with disabilities. How much are they really going to make in an hour? The personal success of getting the product into their customer’s hands gets in the way realistic pricing. It feels successful when your product is done and pricing takes a back seat. Plus, you want to share your wonderful service or item with everyone, and profit slips your mind. A complete list of the costs, not just materials, but energy, space, insurance, accounting services, and time invested need to be factored into what you charge. The personal value of your time should not be undervalued.
The following exercise illustrates costs associated with all phases of product manufacture and distribution and will help you determine how much you should charge per unit to break even.
Pricing & Break-Even Exercise
Instructions: Your business is making Gourmet Dog Biscuits. Another competitor makes a similar product that sells for between $6 and $9 per package. Your pricing strategy puts your retail price at $8. Determine how many packages of dog biscuits it takes to pay both your fixed and variable expenses and to break even.
ALL EXPENSES FOR EARL’S EAT ‘EMS
Biscuit Ingredients $ 2.00 per package
Kitchen & office rent $ 600.00 per month
Hourly labor $ .75 per one package of biscuits
Sales commission/sales rep fee $ .50 per one package of biscuits
Insurance $ 35.00 per month
Packaging & Shipping $ 1.00 per package
Accounting services $ 75.00 per month
Loan payment $ 200.00 per month
Telephone, Website, E-mail $ 80.00 per month
Determine which costs are variable and which are fixed and calculate the total variable expense and the total fixed expense.