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You've got a great idea for a business, a service or product you've decided to launch - but how do you go about setting a price? On the one hand, you risk pricing yourself out of the market and losing valuable sales by going in too high, on the other, you don't want sell your product or service for less than it is worth.

Pricing is not an exact science, but there are several accepted methods of arriving at a figure which can be useful, either on their own or in combination. It's worth bearing in mind, though, that pricing is determined most of all by what potential customers will pay,

irrespective of what method you use to reach your price - and that perceived value can differ significantly from actual value.

However you price your goods or services, you are likely to want to do so in a way which earns you the maximum return on your outlay. It's worth spending some time arriving at a price which suits your and your market's needs.

The methods

The most common methods for determining price are the cost-plus model and the competitor-model. The latter is based on what your competitors charge for theirs similar product in the same market. Finding out what they are charging is often a matter of making a few calls, or getting someone to make them on your behalf. You will want to be sure you are comparing apples with apples though, as there may be many variables which influence the price.

The other common method is to add all the costs involved - material or products, labour, postage, overheads and anything else - and then add a percentage mark-up to reach a final price.

Both these methods are valid and have their uses - and it's a good idea to price your goods and services both ways to help you arrive at a ballpark figure. However, don't just blindly apply the formula - some of your competitors may be about to go out of business because they can't sustain enough orders to maintain their low margins, and you don't want to repeat their mistake!

So, what is it really worth?

Another way to decide on your price is to find out what people will pay for your product or service, and what things would add value. This is by far the best way to decide on your pricing, although it is wise to work out comparative pricing according to the two methods above so you know what kind of premium you may be charging and what your competitors are doing.

The most common way to gather this kind of market intelligence is to hold formal or informal focus groups. This could simply involve taking half a dozen customers or potential customers out to morning tea and discussing your ideas, and asking what they would be prepared to pay for your product or service. It's important that you outline the product or service carefully, and that the sample you choose is representative. Investigate different options too - you could easily find that by adding one or two small additional services or features, or for instance the ability to pay monthly, that you can lift the product or service into a different category with a higher margin.