In business, we have a tried-and-true formula for determining what is affordable.
- Step 1 — Define a marketable product
- Step 2 — Determine how much it will cost to produce the product
- Step 3 — Decide how much profit margin you want when selling the product
- Step 4 — Set the price based on your costs and desired margin
- Step 5 — Tell your desired market(s) how affordable the product is compared to competitors
I like to think of affordability in terms of what people, all people, can actually afford to pay without making undue sacrifices (i.e. doing without food or other basic needs/services) or incurring debt.
How do we determine what is affordable? We ask people at the lower ranges of our socio-economic pyramid what they can afford.
With that information in hand, we can work backward to design products that are truly affordable.
Of course, delivering affordable products is not a requirement for any business. On the other hand, if we’re going to use the term, let’s make sure we’ve gone through this constraint exercise so that we can live up to our claims.