Pricing model is used to set the best price of a product or service that takes into account many of the company’s factors such as marketing objectives, target market, brand positioning, and revenue goals. It comes in different templates in preparing your business plan financial projections. There are three kinds of pricing model templates used by financial analysts in their financial projections, as presented below.
- Cost-Based Pricing Model. The model uses the product’s cost a basis in deriving the selling price to achieve a required gross margin percentage. A profit percentage is added to the value of the product to get your selling price. The advantage of this method for the business is that you can be assured of generating a profit, as long as your mark-up amount suffices to the units sold.
- Competitor-Based Pricing Model. The basis of this model in setting the selling price is the competitor’s price. It involves researching the competitor’s products and prices. After that, you decide whether to put a price below the competitor or if the competition percentage is low, setting a higher price. Usually, most start-up businesses charge their prices at a similar level to competitors and distinguish their products using features such as quality and customer satisfaction. They also set a benchmark where the business may sell its product above or below such a standard. Setting prices above the average will yield a higher profit per unit but might affect units sold as customers often prefer lower prices. However, setting the price below the benchmark will increase units sold, resulting in less profit per unit. In the competitive market, sellers have no control over prices; it is determined by the supply and demand of the product.
- Value-Based Pricing Model. It is a strategy of setting prices based on a customer’s perceived value of a product or service. It is customer-focused pricing, wherein you need to understand the market and customers by researching how much a customer will pay. A technique in this model is changing the selling price of the product sometimes. It monitors its effect on demand and eventually finds out the optimum selling price.
The selling price is a significant component used by financial analysts in preparing for their pricing model templates to set financial projections. It determines the revenue, which is the main purpose of a business. It helps in deriving the projected income that pushes them to pursue the business undertaking. To help you more in setting up a template for your pricing strategy, you may visit eFinancialModels. Here, they have enlisted different financial model templates that are easy to use and understand.