We are working on the project (IT), but we were puzzled to price project. Does anyone can explain, about what it takes as a consideration in determining the price of a project?
Cost + Fee = Price. Costs include salary and wages of project team personnel, travel, and raw materials needed for the project. The salary and wage of team personnel often times are "burdened" with a multiple that covers general and administration (G&A) costs and overhead (OH) items. For example, if a resource's salary is $100K, that equates to about $50/hour. On top of that, you have costs to cover employee benefits and have some mark-up to contribute to your gross profit margin. The unburdened labor rate might be $120/hour for this resource. Then, you burden this rate to include the multiple for G&A and OH, which is determined by estimating your yearly costs and spreading it logically across your labor categories. Thus, the burdened labor rate for this resource might be $200 to $250 an hour.
You need to have specific definitions of G&A, OH, and raw materials to avoid double costing materials. Your materials will typically have a mark-up, as well, which contributes to your gross profit margin.
Fee is your pure profit and is industry specific. Your fee plus what remains from your gross profit margin becomes your net profit.
How you display this to your customer depends on the type of contract you are pursuing.
I want to add one factor to David and Trevor answers that may affect the price of the product. Is the product custom (made for one specific customer) or is it generic (made to fit the needs of many customers). If the product is generic, you have to estimate the product life time in the market (when it is expected to be deprecated and need to be replaced). This parameter with the estimate of number of sales will affect the price. If it is expected to be sold for many customers you may lower the price (may be sometimes to be less than the cost) to give the product marketing advantage and end up with more profit.
David gave a great answer. The only change I would add is if your structure is more subcontractor focused, then the pricing model changes slightly. You then wouldn't necessarily have the G&A and OH costs. Then it's subcontractor price, plus mark-up.
I will confess that I'm a bit confused about one point - you have the project, but are just now trying to figure out how to price it? What did you do, or how did you get the job in the first place without providing an estimate of costs?
Are you asking about pricing of a different type?