Math 5: What Should I Charge?

If you're looking to open up a profitable lemonade stand, this is the video for you. If you're looking to open up a lemonade stand that loses money...you probably don't need our help.

5th GradeMath
Elementary and Middle School5th Grade
LanguageEnglish Language

Transcript

00:23

But say you do notice the different prices…why are they different? [Jelly is scanned at a till]

00:27

Where do these prices come from?

00:28

It's not just someone in the backroom throwing darts at a dartboard.

00:31

There are lots of things that affect the prices of goods and services, even if the dart thing [Darts being thrown at a dartboard with prices on them]

00:35

would be easier and a bit more fun.

00:37

So let's say you're starting a lemonade stand.

00:39

You've got your stand set up, a fresh batch is in the pitcher, and you're ready to make [Kid walking to his lemonade stand]

00:43

some sales.

00:44

…Ooh…one issue….you haven't set a price.

00:46

How much are you going to charge for each cup of lemonade? [Price sign has a question mark on it]

00:49

Sure, you could use the pay-what-you-can model, but you might end up with a lot of clients

00:53

who mysteriously can't pay anything more than a twig and a rock.

00:57

And while a twig for a pitcher of lemonade is a pretty good bargain, it doesn't do you [Kid tries to pay with a stick in a shop]

01:01

much good.

01:02

One important thing to think about when setting a price is how much it costs to make the product.

01:06

Whatever the cost of the product happens to be, you should be charging a bit more, so

01:10

that you're actually making some money.

01:12

After all, it's a business, not a lemonade-based charity.

01:15

If we think about our lemonade stand, it might turn out that once we pay for sugar and lemons… [Ingredients for lemonade]

01:19

…an entire pitcher costs us two dollars to make.

01:22

And if we can get eight cups of lemonade from each pitcher, that means our cost per cup

01:27

is $2 divided by eight, or 25¢. [Cups of lemonade laid out]

01:30

Quarters might be nice and shiny, but if we only charge 25¢ per cup, we're going to end

01:34

up with a grand total of zero dollars profit.

01:37

So if you opened this stand for more than just the love of making lemonade, you'll want [Love hearts coming from boy at a non-profit lemonade stand]

01:41

to charge more than 25¢ per cup.

01:43

May we suggest one million dollars per cup? [People walk up to the stand]

01:46

Which leads us to our next point…

01:48

Another important thing to think about when setting a price is what a fair price would [Customers walk away]

01:51

be.

01:52

If we're selling lemonade, we don't just want our price to cover costs.

01:56

We also want it to be something that people on our block could afford.

01:58

So it might not be the best idea to set our price at $1,000,000 a cup. [Kid looks thoughtful]

02:02

Unless everyone on your block happens to be a billionaire. [Oprah and Bill Gates at the lemonade stand]

02:05

Finally, it's also worth thinking about your target goals.

02:08

Let's say you set up this lemonade stand so that you could buy a pair of roller skates

02:11

that cost $75.

02:13

If you charge $1 per cup, you'll be making 75¢ profit per cup…

02:18

…so once you sell one hundred cups, you and your precious roller skates can start

02:22

your life together.

02:23

However, if you charge 26¢ per cup, you'll only be making 1¢ profit per cup… [Workings written in a notebook]

02:29

…which means you'll have to sell 7,500 cups to get those skates.

02:33

And by the time you'd finally get those skates, you'd probably be a little more worried about [Old man rollerskating]

02:38

retirement… [Old man falls over]