From the course: Pricing Strategy Explained
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Know your margins
- Now we're on to step two which is know your margins. Now, this is very important. This is probably the biggest determinant to your pricing because you know if a product costs more to make it than you sell it for, you don't have a business. And this is why we need to figure out all of the margins, what we call direct margins, that go into your product. So in addition, you need to be able to mark it up with enough to actually cover all your overhead and make a profit at the same time. So that's very important. Now don't get confused because there are a number of different types of margins out there. I'm going to go through a couple of 'em. But the one we're going to focus on is called direct margin. I actually like to use what I call a unit based version of direct margin which is basically what it costs to make a product, an individual product, minus what I can sell it for to whomever I'm selling it to. So it may not be to…
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