In addition, the owner must question if one multiplier works equally well for a variety of products. Since the multiplier only reacts to changes in the base figure, the owner must be continually aware of changes in direct costs. Other disadvantages may include failing to include a profit margin or basing the mark-up on past and not future costs. One alternative to a multiplier is to use a fixed dollar amount to cover indirect costs. However, this creates difficulty if you produce products covering a wide price range.
Value pricing represents a pricing strategy that typically occurs within small niche markets.
The uniqueness of a product allows the owner to charge extra. The customer is able and willing to pay for a customized product or personalized service and support. Typically this false sense of profit occurs when owners fail to consider ALL expenses production and operating. New business owners may also overlook the impact taxes have on the bottom line. Impact of Expenses When people consider starting their own business, they often consider total revenues.