I don't know if this is the right SE site for this question. If not please advise. I found a "price-theory" tag, but if there are other relevant ones, please feel free to add them.

I'm running a small business that landed in my lap recently, and I don't have much experience with this sort of thing. I sell a soil supplement that can be purchased by the pound, for home gardening, or by the ton, for more commercial applications. It's convenient enough for me to sell a 2- or 5- pound bag, or a 20-lb bucket, or a 200-lb barrel of it. I want to set prices, but a linear price/lb, constant across all volumes available, seems wrong to me. People will happily pay $2 or $3/lb for a small bag, but not for a ton! As far as materials and labor to package different amounts, it's a pretty small component of the price. The delivery systems differ in nature, but not very much in cost.

So, I'm working out a scale of prices (p) by volume (V), and noticing things about the mathematics of it. The rate of change dp/dV seems like it ought to decrease smoothly with volume, for example, but the more I think about this, the more it occurs to me that someone has already thought about this. I can't seem to find it by googling, though. It's possible I'm bad at searching for this kind of thing because I don't know what to call it. I've never studied.... whatever that would even be.

Can anyone point me to the theory behind pricing by volume, assuming such work exists? Also, if anyone just has pithy insights on the topic, I'd be happy to hear them. Thanks in advance.

  • Business pricing has nothing to do with Personal finance. That being said... "As far as materials and labor to package different amounts, it's a pretty small component of the price" says who? You've got to figure out the cost of buying lots of little bags with the appropriate labeling, the time it takes to fill and store them. Ditto with 20 lb buckets and 200 lb barrels.
    – RonJohn
    Oct 27 '17 at 16:28
  • @RonJohn, do you know of a better SE site, or something similar, for this type of question? Thank you for your comments 🙂 Oct 27 '17 at 16:49
  • Nope. Good luck, though. :)
    – RonJohn
    Oct 27 '17 at 16:52
  • How about economics.stackexchange.com?
    – 0xFEE1DEAD
    Jan 25 '18 at 17:57

Actually, the rate of change could be more or less constant, but you might have a minimum price that represents your fixed costs. So you might sell a milligram for $1 (which is ridiculous in terms of per-unit pricing) to cover fixed costs, and add $0.50/lb for each step in size to cover variable costs (cost of raw materials and packaging), so a 2lb bag would be $2, a 5lb bag would be $3.50, a ton would be $1,001, etc.

At the end of the day, you want the marginal revenue (the price that you charge for each additional pound) to be more than the marginal cost (the price per pound it takes to produce the bag). Any amount over that goes towards your fixed costs - the cost you'd incur if you sold zero product (rent, utilities, overhead, etc.)

It's not an exact science, and there are many variables that go into pricing.

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