There are mainly three ways to decide prices and usually companies use more than one of them:


1) Cost

Price = unit cost + %

For example, if we want to have a 20 % of margin and our unit cost is 100 euros per unit, we have to put a price = 100 + 20 % 100 = 100 + 0,20 x 100 = 100 + 20 = 120 .


2) Customer (demand)

How customers feel prices. For example, the psychological price of 5 euros is 4,99 euros or 4,95 euros (“four and something” or “less than ”).


3) Competition

Better quality => prices
The same quality => the same
Lower quality => prices