We immediately started discussing a calculation based on the cost to manufacture plus a reasonable gross profit. “Wrong,” the professor interrupted, “first do a market study to determine the maximum price you can charge and still sell appropriate quantities of the product. Then
calculate the cost of manufacture only to determine if production of the product is attractive.”
Setting sales prices is an art, not a science, and is based less on product or service cost than you might imagine. Markets do, and should, determine prices. Therefore, market analysis is an extremely important part of any pricing decision. Read more.