How Should You Be Pricing Your Products?
Question: I am new to the business and don’t know how to price the items I am selling. Any tips?
Answer: In general terms, you would like your gross profit percentage to be around 40% and higher would be better.
Your gross profit margin is the amount left over after you pay the supplier. For instance, if you sell an item for $100 and you owe the supplier $60, your gross profit margin is $40, or $100 - $60. The gross profit percentage in this instance is 40% ($40 profit, $100 selling price).
Mostly, the prices quoted by the suppliers are coded so you see the list price that can be shown to your customer. The code allows you to calculate the percentage of that list price due to the supplier or the net price. Be careful with that. Sometimes suppliers do not have a coded list price and might only quote the net price that you owe them, which can be a costly error.
Paying close attention to your net cost from the supplier and pricing the items correctly for your customer is a critical step that deserves your full attention to grow your business in a profitable way.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.