Pricing Your Products

April brings us deep into mud season, generally too early to be out in the fields. This may be a good time to think about how you are pricing your products.

There are three things to think about when setting prices:
1. Your cost to produce the product;
2. The value your customers put on your product;
3. How much your customers are paying for a similar product.

Of these, the first is the most critical. If you are not pricing your product above what it costs you to produce, then you are losing money. In fact, with every additional product you sell you lose MORE money.

To figure costs of production, you must do an enterprise analysis, based on your best estimates and historical information, if you have it. Customers will value your product based on what they know about it. Several things can “add value” to your product:  a recognizable label, such as organic, creative packaging and design, or effectively telling your story so consumers feel motivated to support you, and understand why your product is superior. Tied to customer value is pricing related to what similar products are selling for. If a customer perceives your product to be the same as another, they expect to pay more or less the same price. If your costs of production dictate a higher price, you must differentiate your product by adding value (above) to convince buyers that your product is worth more.

Jody Padgham is the Financial Director for MOSES, and Editor of Fearless Farm Finances.

April 2013

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