Tag Archives: Net Income
Product pricing can make a huge difference in profitability. In order to determine the best selling price for a product, there are a few concepts you should be aware of first. Optimal product pricing at the point where you can remain competitive in the market place largely depends on the volume of units you anticipate selling and costs associated with either sourcing or manufacturing the product. These costs can be categorized as either fixed costs or variable costs. For the purposes of product pricing, one should focus on the impact variable costs has on the bottom line.
Cost-Volume-Profit analysis is used in the planning process by looking at the effects caused by varying levels of units sold, unit pricing, fixed costs and variable costs on bottom line profit. The primary objective from a managerial perspective is to maximize contribution margin (revenue less variable costs) and minimize fixed costs. In the process of planning, key stakeholders within an organization are likely to ask some very important questions such as “What’s the effect on profit if units sold decreased 3%?” “How much of an impact will a 10% price hike have on profit?” or “what’s the impact to the bottom line if variable cost per unit increased 8%?”