Marketing Compost (EAWAG) - The Water, Sanitation and Hygiene

6 Product pricing
So far you have developed an overview of the market environment, identified
target markets, planned your product and production and considered location.
The next step is to develop a pricing system to attract customers and allow you
to cover your costs.
Product pricing is a core issue facing all companies. A business needs to coordinate
pricing decisions with product development, production, distribution,
and promotion. Therefore, much of the information collected for other marketing
aspects will contribute to pricing decisions.
Covering costs is essential for a self-sustained business, so product price is
partly dependent on production costs. However, many producers will add a
profit margin to cover further investments or for technological improvements.
The size of this margin is limited by the prices of competing products and by
customers’ willingness and ability to pay.
Prices can be calculated in a number of ways, each focusing on different factors,
such as perceived value or cost of competing products. The most basic
method is based on compost production costs and profit. Other approaches
are described in some of the further literature and guidance listed at the end
of the chapter.
6.1 Production costs and profit
If your business does not have sources of income other than the sale of compost
(e. g. waste collection fees, subsidy), the price must equal, or exceed,
production costs.
The unit cost is the cost of producing one unit (e. g. 1 tonne) of compost. It can
be calculated using the following (simplified) equation:
Production costs ($)
Unit cost =
Compost production (tonne)
Marketing Compost—Product pricing 71