Agriculture Reference
In-Depth Information
more valuable than the competition's. Organically grown produce sometimes
does bring premium prices. Goods sold through specialty shops, direct mail,
or other niche markets often bring premium prices. This strategy can be suc-
cessful, but be sure that what you sell is worth the extra cost to your cus-
tomers. In some way, they must perceive that they are gaining some special
advantage by buying from you. Consistent quality is an absolute must with
this pricing strategy. Before you undertake this approach, get to know your
customers and make an objective appraisal of how much they are willing to
pay for what you sell.
Assess your costs.
A more logical approach to pricing than following the
competition is to set your prices according to what it costs you to produce
your goods. Occasionally you might sell some item at below cost to bring in
customers, hoping they will buy other goods at profitable prices. Below-cost
goods sold this way are referred to as “loss leaders” and are common in retail
stores and nurseries. They normally are not used in wholesale marketing.
Loss leaders aside, however, you must charge what it costs you to produce
your goods, plus whatever profit you want to make. This approach is called
“cost-plus pricing.” Say, for example, that you have to spend $1.00 per pound
to grow and market organic cherries, and you want your costs to average 50
percent of the sales price.
Cost = 0.50 × selling price
Cost ÷ 0.50 = selling price = 1.00/0.50 = $2.00 per pound
Another variation on pricing according to your costs is to first estimate how
much of a particular item you can sell, then figure out what it will cost you to
produce the item and how much total profit you want to make. This is called
the set profit approach. For example, you are growing nectarines and you
figure you can sell 10,000 pounds per year, based on your previous sales or
a request from a local fruit broker. Your enterprise budget shows that it will
cost you $1.00 per pound to produce the nectarines, and you want to make
