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Businessweek Archives

Your Pricing Is Probably Wrong


Your product is most likely priced wrong. The only way to know if it is priced right is to know the production and support costs and add on the profitability. This is called cost accounting.

Cost accounting is the messy story problem that most bookkeepers and accountants do not want to deal with. As chief executive officer, it’s your job to learn to do your own cost accounting. (There are plenty of used college texts available as well as Robert A. Cooke’s The McGraw-Hill 36-Hour Course in Finance for Nonfinancial Managers that I have all my clients read.) When you do your own cost accounting, you will know the heartbeat of your company. Your goal here is not to micromanage, but simply to know how much each unit of your product costs or each minute or hour of your service costs. How much money it costs you to make and sell one unit of goods or services is your cost-of-goods-sold plus your general, sales, and administrative costs. Remember to pay yourself a living wage, too.

Now you have the basis for setting your sales price. Knowing that you know the guts of your company will give investors greater confidence in you.

Marilyn J. Holt

CEO

Holt Capital

Seattle


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