Methods of direct pricing
Marketing price policy has a very wide range of approaches to direct (direct) price calculation and this calculation method (Fig. 39). One of the most common methods of pricing is based on cost of production and sales.
Their main idea is to establish a price that would exceed the costs incurred for the production and sales, offsetting their company and providing the desired revenue. There are several techniques for determining the price under this idea.
The method is simple formulas. It is most suitable for pricing in the service sector, where the main share of the cost is staff salaries.
The main advantages of these methods of calculating prices is their simplicity, accessibility, adopting specific decisions, clarity for the consumer. But the second of these methods has some drawbacks, since it does not account for possible differences between planned and actual level of production costs and sales, and between planned and actual number of output and sales.
Another techniques for calculating the price based on cost method is break even. Comparing the profit that it can be obtained at different prices, and enables businesses that have set ourselves rate of return, sell their products at a price which in the specific program output will provide the maximum possible approach to this norm.
This approach relies breakeven analysis using two initial conditions:
- Specific variable unit costs do not vary depending on the volume of its production;
- Any number of products can be sold at a certain price.
These initial conditions do not correspond to reality, but make it possible to greatly simplify the calculations and get quite satisfactory results.
Break-even analysis examines the relationship between the total revenue from the sale of products and its total cost (full costs of production and sale). Here is a basic calculation of breakeven point