Components+of+Price

===The prices businesses charge can make the difference between success and failure of their products. customers must view the product as a good value for the price. The price must be competitive with prices of competitors' products yet must be high enough for the business to make a profit on the sale.=== ===The selling price is the actual price customers pay for the product. The selling price is determined by subtracting any discounts from the list price. Busiensses often set list prices higher than the price at which they end up selling the products. To make a profit, businesses must plan for discounts when setting their list prices.===

===The largest cost that the price must cover is the cost to produce the product or buy it for resale. This is known as cost of goods sold. For manufacturers, the cost of goods sold is the total cost of the materials, operations, and personnel used to make the product. For wholesalers and retailers, it is the price they pay their suplier to buy the product plus the cost of transporting it to their location for resale to their customers. For example, if the invoice price of an item is $55 and the transporation charge is $5, the cost of goods sold is $60.===

===Operating expenses are the costs of operating a business. They do not include costs involved in the actual production or purchase of merchandise, which would be a part of the cost of goods sold. Most costs involved in the day-to-day running of a business fall into this category. Items that could be included in this category are: rent interest paid on borrowed money, salaries, wages, telephone service, depreciation expenses, furniture, equipment, lighting, uncollected accounts, delivery costs, insurance, taxes, supplies, customer service expenses, advertising, donations, and utilities.===

===The gross profit is the difference between the selling price and the cost of goods sold. Marketers think of the gross profit as the percentage of sales available to cover operating expenses and provide a profit. For example, a business may operate on a 25 percent profit margin. If operating expenses are more than 25 percent of sales, the company will lost money.===

Net profit = selling price - cost of goods sold - operating expenses
===Markup is the amount added to the cost of goods sold to determine the selling price. Some consumers confuse the markup percentage with profit. They believe that if a business has a 50 percent markup, it is making profit of 50 percent of the selling price. However, markup must cover operating expenses. If the busines with a 50 percent average markup on its products has operating expenses of 45 percent of sales, it will have a profit of 5 percent of total sales.===