Time for Growth: Is Your Price Right?
The words “price” and “right” might make you think about the game show “The Price is Right.” However as a business owner, you know, or soon will figure out, that pricing is not a game.
The landscape of closed businesses are littered with businesses that failed to get their pricing strategy right. Some owners realised their mistake but did not correct quickly enough or sufficiently. Others just did not pick up on the signs that they were headed for trouble.
To have a strong and successful business, you need to have a clear understanding of the financial impact that your most basic business decisions may have.
The pricing strategy of your small business can ultimately determine your fate. Small business owners can ensure profitability and longevity by paying close attention to their pricing strategy.
Commonly, in business plans I’ve reviewed, the pricing strategy has been to be the lowest price provider in the market. This approach comes from taking a quick view of competitors and assuming you can win business by having the lowest price.
The goal of business is to make a profit. Many small businesses fail at this because they don’t know how to price their products or services, but pricing is the critical element to achieving a profit, a factor that all firms can control.
If you’re a start-up or are revisiting your pricing strategy, here are some suggestions from industry experts and small business owners to help you get the price right.
1) Understand service costs and their impact on pricing
Every business has different costs. Many firms fail to analyse their total cost and thus fail to price them profitably. By analysing the cost of each service, prices can be set to maximise profits and eliminate unprofitable products or services.
You need to prioritise Costs + Profit % = Price
Cost Components to understand and analyse are:
- Material costs
- Labour costs, including, but salaries plus benefits
- Overhead costs. Any cost not readily identifiable with a particular product is overhead. Taxes, fees, rent, insurance, marketing and transportation are all overhead. Part of the overhead costs must be allocated to each service performed or product produced and must be adjusted annually.
2) What are your competitors charging?
Pricing isn’t just about making a profit and covering your operating expenses, it’s also about where you want to position yourself in the marketplace. Where do you want your brand to be in the grand scheme of things? Perhaps you want to be the high-end competitor to someone who’s at the low-end of the market, or the reverse.
3) Think of ways you can tier your business’ pricing structure to sell people early on the notion of a price, and then add options that ultimately will help you increase your bottom line.
4) Price higher than you think you would
I hear on a weekly basis “I always unwittingly underprice my services.” Not charging enough is a common problem for small businesses simply because they often don’t have the operational efficiencies of larger companies and frequently find that, whatever they sell, their costs are higher than they anticipated. Small businesses do have one advantage, though, and it’s one that justifies charging a higher price – service!
Maximising your return may mean your pricing is not the highest or the lowest. It is that which adds the most to your bottom line in the long term. The biggest difficulty is understanding what your advantage is and having the ability to maintain it.
Pricing is part science and part art. Getting it right is hard, but getting it wrong means a waste of your time and money, and perhaps the end of your opportunity.
Don’t put of getting your Price right. Call Ann on 07725052349 to make the difference rapidly to your bottom-line.