CLEAR FORM

R Worksheet - Pricing Models for a Successful Business

The concept of “price” is a topic many entrepreneurs ponder as they begin shaping their business
ideas. In the Introduction to Pricing course, you learned about three pricing models—Cost-
based Pricing, Customer-based Pricing, and Competition-based Pricing. This course explores
those pricing models and discusses topics to help you adapt your pricing to your market.

Of the four “Ps” in the marketing mix, Price is the only  component that  
generates revenue; Product, Promotion, and Place are all costs.

Use this worksheet to document your thoughts, ideas, and action items as they relate to
developing a pricing model for your business. The questions below follow the topics discussed in
the course. You can use the fillable PDF form fields or print the worksheet and write in the space
provided.

Cost-Based Pricing Model

To implement a cost-based pricing model, you first need to calculate the costs incurred by
producing, marketing, and distributing your product or service. Use the space below to calculate
the different variable and fixed costs for your product or service.

Variable Costs: Write down the variable costs you have to produce your product or deliver your
service. To make this easier, try to do this for an average year or month. For example, if you
normally product 5,000 units a month use that as your basis to calculate these costs.

Item Cost # of units produced Cost Per Unit

(For example, Flour) (e.g., $500.00) (e.g., 5,000 ) ($500.00/5,000 = $0.10)

TOTAL VARIABLE COST PER UNIT:

Next, add up all of the costs in the “Cost Per Unit” column: _______ Reset Table
This is your total variable cost per unit.

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 R Worksheet - Pricing Models for a Successful Business
Fixed Costs: Now, write down all of the fixed costs you have. If you were able to calculate your
variable costs based on your monthly production rate, use your monthly fixed costs here.
Item Cost # of units produced Cost Per Unit
(For example, Rent) (e.g., $2,000.00) (e.g., 5,000) ($2,000/5,000 = $0.40)

TOTAL FIXED COST PER UNIT:

Next, add up all of the costs in the “Cost Per Unit” column: _______ Reset Table
This is your total fixed cost per unit.

You can find your total cost per unit by adding your variable cost per unit and your fixed cost per
unit:
____________________ + _________________ = ___________________
(Variable Cost Per Unit) (Fixed Cost Per Unit) (Total Cost Per Unit)

Adding Markup: Separating your costs into variable and fixed costs allows you to perform
different calculations and play around with various factors to see how they influence your prices.
By changing these factors, you can reduce costs to increase profits or decrease prices to increase
sales and market share. What percent markup would you like to add to your product?
HINT: Your markup should allow you to make a reasonable profit. If your Total Cost Per Unit is
more than your current price, your business is losing money.

To find your final price, first calculate your Markup Cost by multiplying your Total Cost Per
Unit with the Markup % you chose. Convert your Markup % to a decimal (e.g. 5% = .05).

____________________ x _________________ = _____________

(Total Cost Per Unit) (Markup % as decimal) (Markup Cost)

Then, add your Markup Cost to the Total Cost Per Unit for your final price:

____________________ + _________________ = _____________

(Markup Cost) (Total Cost Per Unit) (Final Price)

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 R Worksheet - Pricing Models for a Successful Business

Customer-Based Pricing Model

The Customer-based pricing model, also called value-based pricing, involves using information
about your customers to set a price. To implement a customer-based pricing model, you need to
study the market in order to understand how much your customers can and are willing to pay.
Finding this out requires you to do some research.

Use the table below to write down your plan and results for different customer research ideas.

Research Idea Execution Plan Results

Perform
Satisfaction
Studies

Research
Customer
Decision-
making Process

Measure Effect
of Prices

Monitor Social
Media

Research
Customer
Perception

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 R Worksheet - Pricing Models for a Successful Business

Often times in the Customer-based pricing model, you will offer your product at different prices
to different segments in your target market. These segments are divided based on the customers’
requirements, attitudes, culture, and various other characteristics. Use the table below to identify
market segments that you’ll need to target and write down information about how you might do
that.

Market Segment & Segment Size Segment Price Segment Price

Description Considerations
(e.g., France: Less sensitive to price
This is the market I ~$1,500,000 annually than my other segments
export to in France ) ~15% of my sales $10/each
– I could charge 10%
more and not lose sales

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 R Worksheet - Pricing Models for a Successful Business

Competition-Based Pricing Model

When using the Competition-based pricing model, a business sets is prices based on where its
competitors set theirs. Like the Customer-based pricing model, the Competitor-based model
relies heavily on research.

Use the table below to write some information about your competitors:

Competitor Description Analysis Price

The widgets are the same Acme price is $5/widget I

but Acme Products doesn’t would probably need to sell
Online store that offers offer a guarantee. at that price to bring in
Eg: Acme Products the same widgets that I However, they are customers because they are
sell considered the leader in so popular, even though I
the widget industry. offer a guarantee.

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 R Worksheet - Pricing Models for a Successful Business

Breakeven Analysis

Regardless of the pricing method you chose, a breakeven analysis is essential to determine the
volume of sales you need to achieve to recover your costs at a certain price. You will need the
Variable and Fixed Costs you calculated in the cost-based pricing section as well as the price you
plan to charge for your product.

To find the Breakeven Quantity (BEQ) that you must sell each month to cover your costs use the
following formula.

Fixed Costs Per Month

BEQ = -----------------------------------------------------------
Price per unit – Variable Cost per unit

Break-Even Quantity Calculator

Variable Cost Per Unit:
Fixed Cost Per Month:
Price Per Unit:
BreakEven Quantity:
Clear Calculator

What is your BEQ for each month? _______________

Do you think you can sell that many units each month at that price? Remember to set
achievable goals. Then, track their progress and make adjustments based on results. How
would changing your price affect the amount of units you need to sell?

Selecting Your Pricing Model

Now that you’ve analyzed the various pricing models for your business, which one is right for
your business? Will you need to mix some aspects of each model? What do you think your final
price will be?..

For example, you calculate your costs to be $5/unit (Cost-based). You know your competitor
sells a similar product for $10/unit. So – you sell your product at $9.50/unit (Competition-
based). Knowing what your competitor sells for helped you decide what markup to add to your
product.

Similarly, if you know your competitor sells for $10/unit (Competition-based), but your
customers are willing to pay a little more as long as you offer free installation (Customer-based),
you may charge $15/unit and offer free installation based on both your competitor’s price and
what your customer is willing to pay. Regardless of which model you use as the basis for your
price, you should also consider your costs, customers, and competition to ensure you’re offering
the right price.
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RESOURCES:

This worksheet is intended to help you document your ideas and possible solutions to common
challenges small businesses face daily. You are not alone! If you would like talk to someone
about your business, the SBA has a broad network of skilled counselors and business
development specialists waiting to help your business start, grow, and succeed. Below is a short
description of our resource partners:

• There are more than 1,000 Small Business Development Centers (SBDCs) located around
the country. SBDCs provide management assistance to current and prospective small
business owners.
• SCORE is a powerful source of free and confidential small business advice to help build
your business. More than 10,000 SCORE volunteers are available to share their experience
in lessons learned in small business.
• Women’s Business Centers (WBCs) assist women and men in achieving their dreams by
helping them start and run successful businesses. Over 90 WBCs are located around the
country.
• The SBA has over 60 District Offices located throughout the country to help you start and
grow your business.
• The SBA Learning Center is a powerful virtual campus with online training, videos, tools
and links to local resources.
• The SBA’s Office of Women’s Business Ownership (OWBO) serves as an advocate for
women-owned businesses. The office oversees a nationwide network of 110 Women’s
Business Centers that provide business training, counseling and mentoring geared
specifically to women, especially those who are socially and economically disadvantaged.
The program is a public-private partnership with locally based nonprofits.
• The Veterans Business Outreach Program (VBOP) is designed to provide entrepreneurial
development services such as business training, counseling and mentoring, and referrals for
eligible veterans owning or considering starting a small business. The SBA has 15
organizations participating in this cooperative agreement and serving as Veterans Business
Outreach Centers (VBOC).
• Procurement Technical Assistance Centers (PTACs) provide local, in-person counseling
and training services for you, the small business owner. They are designed to provide
technical assistance to businesses that want to sell products and services to federal, state,
and/or local governments. PTAC services are available either free of charge, or at a nominal
cost. PTACs are part of the Procurement Technical Assistance Program, which is
administered by the Defense Logistics Agency.

Find all your local resources in one place using our handy zip-code tool: www.SBA.gov/local-
assistance

For more information about SBA programs and services, please download the 2014 Resource
Guide for Small Business, available for download at the following URL:
http://www.sba.gov/about-sba/what_we_do/resource_guides

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