Hi Dorothy,
I don’t believe they will fail your submission based on that. I think they ask you that question to see if you have can put a value point on your product.
I think if you have researched your product enough, and compared your product to similar products on the market you should be able to come close.
On the other hand if your product is so unique that there really isn’t anything close to it on the market, then you would just be giving them an educated guess based on what you feel the product valve would be. You would base that on the materials you want it to be made of, the packaging, and any other information you have available to you.
So you see it really isn’t going to be exact, because so many things will effect the actual retail price point:-)
That is just my opinion and I cannot say it is a fact:-)

Thank you, I appreciate the feedback. That makes me feel better.

You are welcome!
I’m sure others will also give you some in put:-)

Hi Dorothy,
I remember reading a while back that the industry standard is your actual production cost X5. That leaves enough for the mfg, middle men and retailers to make a profit. I produced a hand tool and went to retailers and also bigger distributors who supplied them. The retailer wanted to buy from me at 30% less than retail. The distributers wanted to buy at 25% under them.

For example, if an item cost you $10 to make, it would retail for $49.99, sell to retailer @ $34.99 and sell to their distributer @ $22.49.

If you can sell items on line and eliminate the guys in the middle, you can make a lot more money or lower your price.

Blessings!

Thanks David, that gives me a clearer idea of what my product will sell for. I appreciate the information.

David brings up one way to do it,

however in retail consumer products often times you start from both ends to meet in the middle. Using data from the market itself, and from consumer surveys, you get a feel for what the MSRP is on the product. At the same time you drive the manufacturing costs from the other end. to calculate what the fulfillment price will be on the item. What’s in the middle is the ancillary costs such as sales commissions, discounts, and the like.

Most big box retailers work on what is called a Keystone – basically 100% profit. (Although Grocery can be as low as 3% and things like Jewelry can be as high as 3000% ) So take what you think the MSRP will be, and cut it in 1/2 – then you can start to work from that number back to the manufacturing number to calculate gross profit per unit, and later your Net contribution margin for the item – or what is sometimes know as “true profit”.

I wrote about this the other day on my blog http://inventoropinion.blogspot.com/2009/05/so-… with an example of the math and a copy of the actual spreadsheet calculator we use to calculate the margins.

Hope this helps….

Mark

Thanks Mark, I’ll check it out.

No problem….it should help.

Mark
http://inventoropinion.blogspot.com

Dorothy, Mark and David are giving good solid advice. One other reason you will be asked about price point is to see if you are realistic in your expectations and have researched your product. A perfect example of this was on a recent show of the Pitchmen. Forbes Riley invented an excercise tool that she insisted they sell at $29.95. Billy and Sulley said she was pricing herself out of a market. They thought $19.95 or $14.95 would be better or even $10. Forbes said she would not have her name attached to a $10 product. They ran some test ads and guess what, the Pitchmen were right. At $19.95 they were spending $250 worth of advertising dollars for every $1 they were taking in. She priced herself right out of a market.
There is a phrase used in the business world called “what the market will bare.” People are willing to pay $18 for a music CD even though at $5 the company would still make a profit.

http://www.rogerbrown.net