How do you price products?

Pricing a product has more than one answer because it depends on many economic and market variables and a short cut is bench marking. This is a difference maker in many organizations for understanding the range of performance levels that are possible in performing similar activities. Moreover, organizations will want to understand the characteristics or drivers of their own and others’ performance in the same market. This practice is over time used to improve a company’s performance by facilitating tactical or strategic modifications.

The Gross Margin Formula is a common way of pricing and is simply gross profit divided by revenue.

For example, if you own a candy store and buy a box of candies from your vendor for $10, and then sell it to customers for $20, then your gross profit is $10.

You can then divide your gross profit by your revenue ($10 / $20 = 0.50 or 50%). Your gross margin is 50% and you will keep 50 cents of every dollar for other business expenses and/or profit. This equation may seem simple but the meaning behind the percentage is substantial.

One prime use is a measure a company’s efficiency

Gross margin is a worthy metric of company health and efficiency, especially when comparing year-to-year operation. In case gross margin drops considerably from the previous year a reevaluation of costs and revenue becomes necessary in order to determine what the reason for the drop in revenue or an increase in cost is.

Benchmarking against others in the same industry

Comparing gross profit margin with others in an industry can be used to determine how a particular company is doing up against the competition. If trailing behind, a better method to increase margins is certainly needed on either the revenue or cost side of the equation:

Lowering wholesale cost if observed that other companies in the same industry have higher margins. This it could be because they are able to produce the same product at a lower cost. Looking for less expensive vendors or production methods can influence manufacturing costs.

Increasing revenue by increasing the retail price of a product would bring higher revenue per unit sale. However, if the markups are too high, then people will be less inclined to buy the same product for a higher price,so, mark up calculation comes into play.

Finding the right price spot for markups can be difficult. If price-products are too high, people will not buy but if the price is too low, then there will not be enough revenue to cover costs.

Statistics of Industry Benchmarks

In order to be precise with price markup, it’s necessary to study what others in the same industry are charging. In today’s market digital age consumers can instantly compare prices among multiple similar companies.

National Association of convenience stores (NACS)

“The NACS State of the Industry (SOI) Annual Report is based on data submitted by actual retail companies participating in the NACS SOI Survey.” This publication has been available since 1972, and the report provides data in the critical categories of finance, store operations, merchandising and fuel sales. “The data also analyzes comparative performance based on store operating profit, which allows retailers to benchmark and improve their own operations by considering the drivers of significant performance metrics.”

​According to the 2012 report,” the U.S. convenience store industry had sales of $700.3 billion, with merchandise contributing to 19% of sales. The total gross margin contribution of merchandise was 40%.”

Also included in the report is gross margin percentage, average gross margin% per store for various categories. Below is a review of the NACS Category Definitions and Numbering Guide, which was developed by the NACS Research Committee.

Category Markup	Percentage
Cigarettes	17%
Other Tobacco	44%
Packaged Beverages(non alcoholic)	65%
Beer	23%
Wine	36%
Liquor	31%
Edible Grocery	31%
Non-edible Grocery	73%
Perishable Grocery	53%
Frozen Foods	77%
Packaged Ice Cream/ Novelties	66%
Candy	85%
Salty Snacks	90%
Packaged Sweet Snacks	62%
Alternative Snacks	50%
Fluid Milk Product	42%
Other Dairy and Deli	66%
Packaged Bread	40%
Health & Beauty Care	106%
General Merchandise	65%
Automotive Products	83%
Publications	27%
Ice	286%
AVERAGE	66%
Food Service
Food Prepared On-Site	121%
Commissary/ Packaged Sandwiches	58%
Hot Dispensed Beverages	154%
Cold Dispensed Beverages	107%
Frozen Dispensed Beverages	111%
AVERAGE	110%
Source: NACS State of the Industry Annual Report 2012 Data