What is a price floor?
Price floor (lowest price): For a one-off extra order when you have spare time, the lowest useful price is the variable cost. In the long run, prices must cover the full cost.
Full cost per item = variable cost + fixed costs / items sold
Example
For a one-off extra order when she has spare time, Nora's lowest useful price is her variable cost, $1.50 a bun. In the long run each bun must cover its full cost: $1.50 + $700 / 800 buns = about $2.38.
Made-up people and numbers from the cases of our course; the math is real.
A common mistake
Selling at the variable cost all the time. Then nothing is left for rent and the other fixed costs.
Try it with your own numbers: Break-even calculator (free, no sign-up).
Practise this in block 1
Block 1 of Ownwise is free, with no account needed to start: short lessons on costs, margin and break-even, then a made-up case where you make the decisions. This term has its own lessons in block 2, part of the paid practice pack.