How to calculate the fair price of a product

Surely on many occasions you have wondered if the price you are paying for a certain item it is too disproportionate to its fair price.

This problem can also occur when selling a product, due to doubt about what is the most reasonable price to make a profit without being too expensive.

Well, to know the fair price of a product or service, a series of variables must be taken into account in relation to the costs of producing the item or service.

How is the fair price of a product calculated?

First of all, the types of costs must be taken into account when making or providing a product or service. On the one hand, they are the direct costs of the product, that is, those expenses that are generated directly when producing the article. A direct cost would be the materials used to make it or the salaries of the workers who are responsible for its production.

On the other hand, they are indirect costs, which are those expenses that are not directly involved in production but are also necessary to carry them out, for example, the electricity bill or the repair of a machine that is involved in the production process.

Taking into account the direct costs of manufacturing a unit of product and, also, equitably distributing indirect costs, it is already clear how much it costs to produce a unit of product.

Knowing the total costs of manufacturing a product, you can set a fair sale price, more or less high, to get a profit margin without the price being excessive.

What other factors influence the price of a product?

In addition to this explanation on how to calculate the fair price of an item or service taking into account direct or indirect costs, there are other variables that come into play in the market.

The offer, the demand, the prestige, the brand or the exclusivity of the product are some of those factors that influence the market when putting a product on sale and also when paying for it.

Logically, a shoe without a specific brand is not worth the same as a limited edition shoe from an internationally recognized brand. In this aspect, the exclusivity of the product comes into play and, of course, the fact of knowing that there are buyers in the market willing to pay a high price for getting the exclusive product of a certain brand.

The same happens to a merchant who wants to put a product on the market for sale knowing that there are already other products similar to his. The price you put will depend, not only on the cost of production, but also the price for which the competition is selling their items the same or similar.