There are many things which become much more complex if you are selling a range of products at varying prices. Here is a five-step method to go about determining prices in this situation. First is calculating your fixed costs, or overhead. Then, determine the incremental cost per unit, or variable cost, for each of the various items you expect to sell. Third is coming up with a realistic estimate of the number of each of the items you expect to sell in a month. Fourth, multiply the units times the incremental cost. And the last, adding the total to fixed costs. The result is your break-even point. You are supposed to do those five methods in order to be able to determine the price in every situation.
This tells you that you need to mark up your products by an average of 50 percent to break even. (Products that cost you $2,000 to build or buy need to sell for $3,000 to include the cost of overhead.) One method of setting prices is to determine a standard markup, in the form of a percentage, and apply it to the cost of an item. For example, you might determine that your cost of goods for a cuckoo clock is $40 and your target markup percentage is 50 percent. That means its selling price would be $60. If you decide that you want your business to generate $500 in profit, you would need to apply a markup of 75 percent ($2,000 in variable costs times 1.75 equals $3,500 in receipts).