Analyze the company's business activities. Determine the company's expenditure by reviewing reports from the finance function of the organization. Knowing the company's business activities enables the management to make an informed decision on the target profit desired.
Consult the production function and marketing function of the organization to determine the price of the product. Consider the operation or production costs as well as other variable costs such as advertising, branding costs, employee wages and allowances when coming up with the price of the product.
Run a test marketing activity to sample the reaction of the product in the market and to better define your market. Use the data collected on the reaction of consumers on price or any other aspect of the product to determine the products probability for success or failure. Calculate the probability percentage by dividing the number of consumers who responded positively to a product by the total number of consumers who took part in the exercise.
Review the company's results in terms of sales from the past couple of years. Divide the total profits by the total sales to come up with a probability ratio of success based on past performances.
Determine the sale per unit price from the previous year as well as the variable cost per unit. Determine the total fixed expenses of the production process. Determine the target profit per unit by equation the sales per unit to the variable cost per unit, fixed expenses and the target profit required. Use the following formula:
Sales per unit= Variable expenses per unit + Fixed expenses + Profit.