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When it comes to determining a price for your products, it is important to ensure that you are able to cover all of the costs involved in bringing the product to the market whilst also leaving a margin from which to make a profit. It is also important to consider what your target market is and what they are prepared to spend.

In general, there are three types of costs you need to consider;  

Fixed Costs

The expenditures that do not change regardless of the business's volume of sales. These must be covered no matter what sales you achieve. Examples include rent, licence fees and interest to be paid on business debts.

These depend on the operational activities of the business.  That is, as the volume of sales and production activities change, so does the level of costs. Examples include material costs that are inputs to the production process.

These depend on the operational activities of the business.  That is, as the volume of sales and production activities change, so does the level of costs. Examples include material costs that are inputs to the production process.

Variable Costs

These depend on the operational activities of the business.  That is, as the volume of sales and production activities change, so does the level of costs. Examples include material costs that are inputs to the production process.

Semi Fixed Costs

Are costs that have a fixed component and a variable component such as infrastructure expenses (telephone line rental and usage, electricity, water).

Your pricing should reflect the levels of these costs and cover your expenses at the very least. In the initial stages of developing a business, profit levels may be low; however you should aim to increase the level of profit as your business grows.