The determination of the competitive market price of Goods and Services is vital for us to optimize our hard earned money. In this post, I summary three different methods that we can use to evaluate market prices of Goods and Services.
Survey may be the most common method we use to evaluate the price of goods and services.
To implement survey properly, we need to gather sufficient information that come from different independent reliable resources. Otherwise, we may be misled by the bias information that we have eventually.
2. Cost plus method
We should always bear in mind that business aims for reasonable profits. Thus, by adding an appropriate mark-up to the cost of goods and services, we shall be able to estimate the reasonable price of a particular goods or services.
If the profit margin is unreasonable higher than normal, then we should get rid of that kind of deal for awhile. Sooner or later, the force of free market (the invisible hand) will eventually make it reach its steady state.
3. Comparison with other contemporaneous transactions
Unless the above mentioned methods are not applicable, I do not think we should make a judgement based on other contemporaneous transactions frequently.
This is because contemporaneous transactions may be extremely varied to its reasonable price in a short period of time.
Thus, we need to manage our inventory or financial properly in such ways that we can ignore or even get profit from the unreasonable pricing that occurs.
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Written by: Xaivier Chia
P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.