A male entrepreneur from Negril has come forward with the question of how to price the pizza which he oven bakes and sells in the resort town in Westmoreland.

The answer provided by Winsome Armstrong of the Small Business Development Corporation (JBDC) in Kingston will assist others who are puzzled about setting the right price for the product or service which they plan to introduce to the local market.

According to Armstrong, there are many models to set the price of a product, including economy pricing, penetration pricing, premium pricing, value pricing and promotional pricing.

And these are just to name a few.

In real terms, products are priced by small businessmen and women in a very arbitrary fashion when, instead, some research and examination of the competition is necessary before price is set.

"They should always remember that in a free market economy where buyers and sellers are solely responsible for the choices they make, the prices of goods and services are set by such buyers and sellers," said Armstrong.

profit

They should note as well that the costs of production vary as determined by equipment costs, price and quality of the ingredients, rent and employees' wages, and other price points.

So how does one go about pricing a pizza to make a profit?

Bearing in mind all the factors of production, it is critical that the selling price of the pizza is enough to cover all of the operating costs including the cost price of the pizza.

Pizza is a very competitive sector and so the rationale should be to price in line with your immediate competitors, unless you are targeting a niche market that your competitors do not cater to.

Nonetheless, this should not hinder you from knowing the cost of producing your own product. In the pizza business, most ingredients are called dry goods.

There are various types of pizzas available in different form made from a variety of ingredients including flour, salt, sauces, various types of toppings including bell peppers, onions, sweet corn and meat kinds such as ground beef, bacon, ham, chicken, seafood, etc.

cost

In order to capture the cost of all ingredients, the menu/recipe must be looked at in its totality. All ingredients in the recipe - the 2¹/2 cups of flour, the teaspoon of sugar, etc - should be converted into ounces and calculated to determine the cost of making each pizza.

A percentage which takes into consideration the other costs of production - direct labour, electricity, water and others - is then added to food cost to arrive at a final price for the pizza.

Added also to price will be retained profit - the money you will need to put in savings to use later as capital expenditure to grow and diversify the business and meet other needs.

quality

If having priced your pizza or other products you realise that the cost to the consumer will be far more than those producing a similar quality, you will need to go back to the drawing board.

Maybe instead you should try to bring another more affordable and appealing product to the market. Or, you may change your target market altogether.

For example, if you propose to locate in an affluent area, you might decide to offer a very up-market or specialty range of pizzas, and other side orders.

You would highlight the fact that you make all the dough from scratch, use only the best Italian cheeses, hams, salamis and so on, and bake your pizzas in authentic wood-fired pizza ovens.

Your products would be significantly more expensive than those targeted at the mass market and, therefore, command a better price.

Email Winsome: winsomearmstrong@jbdc.net.