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GoVenture CEO Business Simulator Pricing Tutorial for Students


This video will help explain product

pricing and break-even analysis. Make


sure to watch the other videos and read

the user guide for additional


information.

Product price is what consumers will pay


to purchase your product. It is how you

generate revenue. Pricing is one of the


key challenges you face when running a

business.


Here we'll want to set a price that is

high enough for you to generate as much


revenue and profit as possible, but the

price cannot be so high that it will


drive customers to buy from a lower

priced competitor or one that offers


more value. To determine a profitable

price, you have to determine your


break-even point and then add an extra

amount for profit to the company. For


example: if a product costs $10 to

manufacture, ship, market, and sell - then


you should set the price of the product

at more than $10 otherwise you will be


losing money on every sale. Let's take

this example further. Let's say that you


are going to manufacture 100 products.

Each product costs $5 to manufacture for


a total cost of $500. You are also going

to spend $500 on shipping, marketing


selling, and all other costs combined.

Your total costs are now $500 for


manufacturing plus $500 for everything

else which equals $1,000 in total costs.


Assuming you plan to sell all 100

products then your break-even price is


$1,000 in total costs divided by 100

products, which equals 10 dollars. This


means that if you sell all 100 products

at $10 each you will generate one


thousand dollars in revenue which

matches your $1,000 costs. Your profit


will be $0. To make a profit you will

have to sell each product for more than


$10. If you sell each product for $11,

you will make $1.00 in profit for each


product you sell for a total of $100

profit.


Is $1.00 in profit per product enough?

That's for you to determine. How do you


know if you can raise our prices

there is no preset price that consumers


are expecting to pay for your product. The amount of money consumers will pay


for your product depends on two factors.

One:How well your product fits customer


needs. You can discover this by reviewing

the consumer pyschographics in the


consumer profiles report. [and] Two: How

well your product is priced compared to


competing products. For example: If a

consumer is completely price conscious


and does not care about brand or product

features then they are going to buy the


lowest priced product on the market. If a

consumer wants specific features or a


brand and their psychographics show that

they are not very price sensitive then


this consumer will likely be willing to

pay more for a product that matches


their needs. There are two other

considerations when doing your


forecasting. First: If there is a reseller

discount sales commission or other


compensation earned by the seller of the

product, your price will need to be even


higher in order to cover these amounts.

Second: Keep in mind that forecasts only


work as long as you sell all of your

products. If you manufacture 100 products,


but do not sell all 100 of them, your

revenue will be lower than expected and


this will negatively affect your

profitability.


Review your budget and use the strategy

journal and WHAT IF? calculator to help


with your price planning. As the

simulation advances each period you will


be able to discover new information

about the market and your competitors.


Use that information to adjust your

pricing strategy so that you can best


reach your business goals. Good luck and

GoVenture!