After you've determined your break-even points which establish floors for your price, there are strategies for establishing pricing based upon additional financial objectives, such as:
Establishing a high price to make high profits initially. This strategy is used to recover high research and development costs or to maximize profits before competitors enter the market. (Pharmaceutical companies often use this strategy when introducing new drugs.)
Setting a low price on one or more products to make quick sales to support another product in development. (Some companies also employ this strategy when they need to increase cash flow.)
Setting prices to meet a desired profit goal. For example, if the desired profit per unit is 20 percent and unit costs are $10 (taking into account your fixed and variable costs), set your price at $12.
You may also determine how many units you will need to sell to meet a profit goal by using the following formula.
Break-Even Unit Volume = (Fixed Costs / Unit Contribution Margin)*
* Unit Contribution Margin = Selling Price per Unit - Variable cost per unit.
