Pricing economics and financial metrics

Skimming

Setting a high initial price for innovative products, lowering it over time as competitors enter

Penetration

Setting a low initial price to quickly gain market share and build a customer base

Dynamic Pricing

ADusting prices real-time based on demand, supply, and customer behavior

Psychological pricing

Charm pricing ($9.99), prestige pricing (high prices signaling luxury), bundle pricing

Cost-plus / markup pricing

adding a fixed percentage markup to the unit production cost

Break-even analysis

determining the volume of sales needed to cover total fixed and variable costs

Margin vs. markup

calculating gross/net profit margins percentage vs. cost markup percentage

Customer acquisition cost

Total marketing and sales spend divided by new customers acquired

Customer lifetime value

Total net profit attributed to the entire future relationship wiht a customer

Price elasticity of demand

Understanding how demand changes in response to price adjustments

Legal compliance

Avoiding price-fixing, predatory pricing, price discrimination, and deceptive pricing tactics

Break-Even point

The exact point at which total revenue generated equals total costs incurred, resulting in zero profit and zero loss

Variable costs

Production expenses that fluctuate directly in proportion to sales or output volume

Return on investment

A financial metric calculating the efficiency or profitability of an investment

Price elasticity of demand

A metric measuring how sensitive consumer demand for a product is relative to a change in its price

Markup percentage

The percentage added to the cost of a product to determine its final retail selling price

Fixed costs

Overhead business expenses that remain constant regardless of production or sales volume

e.g. rent, insurance, administrative salaries

Dynamic pricing

The practice of fluctuating prices in real-time based on shifts in demand, supply, competitor activity, or customer algorithms.