| |
| |
|
Marketing Information |
|
|
|
Small Business Pricing: Setting A Price For Your Product / Service
The importance of pricing can not be underestimated as incorrect pricing can often result in the failure of a business. New businesses often make the mistake of either charging too little or too much for their product or service. So to help you avoid making one of these mistakes, the following section will outline some of the guiding principles of price determination. Price is a key part of marketing. Setting prices is called pricing. Pricing means more than how much you charge. Smart customers look beyond pricing when considering a purchase. Price is important but so are delivery times, guarantees, customer support and quality to name a few. Small and home based businesses can - in many cases - do a better job than "big businesses" in some of these areas. You should evaluate your pricing based on this fact. You're small and don't have the inertia or paperwork logjams of a bigger business. You're quick on your feet and can change direction easily and quickly.How do I get started on pricing a product/service? There are 4 steps here suggested by us. This module may not serve all types of businesses so if you are not sure consult as many sources as possible Step 1 Do your homework You cannot determine prices based only on costs and desired profit margins. First step is to do a little research to get some "real world" pricing guidelines. You don't need a high priced marketing firm to help. Remember, you know your business better than any consultant. Refer to the micro module on Market Research or follow the following pointers on finding out what your competitors and other businesses are doing regarding price. Once again there is no substitute for getting out into the field and doing the research yourself. Locate a trade association, organization or networking group whose specialty is your service. If none exists, find an association with a similar product. In general, associations can tell you the high-low and average prices charged by members. You can find some organizations listed at our Free for al links or at any local business advice center. Trade/Business Journals and newspapers contain articles that may include prices. At least once a year, I see an article about my industry online or in a periodical that contains industry fees. Ask your accountant or Coach for some ideas; after all, they deal with business owners all the time. There are many career and employee guides that provide industry or job related prices. Consult any industry specific control or accreditation body. Obtain the cost of raw materials and supplies necessary for your product. Surely you want to charge more than it's costing you for the items! Many business owners place a pricing structure on their websites. Using the industry name, plus the word "rate" or "fees", you can find those sites on the Internet. Determine your hourly rate. What is your time worth? Call similar businesses, outside your local area, for their prices. If you're not their competition, you have a better chance to be told the score. Visit stores that sell the product you're interested in selling to determine their pricing system. Ask everyone you know "if" and "what" they will pay for "x". Ask prospective clients what they would pay for your product or service. Step 2Determine Your Pricing Objective - What do you hope to achieve? There are 3 ways to find the appropriate level for you and your product. Base Price -- The lowest price or rate you must charge to cover your cost including, cost of living and keeping your knowledge and skills up to date. Base Price is one of your pricing objectives. It's a very important one. This is the one figure you need know so you can keep your doors open. This is your break even point. The absolute minimum needed. Chargeable Time is the maximum number of working days/hours in a given year. This is the one figure most business owners never consider. It is the number one reason why you end up working long hours and long weeks for your business. Now divide your cost or Base Price by the number of days from your chargeable time figure. This gives you your daily income benchmark. The amount you need to be making per day from your products or service rates. Be careful about lowering prices just to meet or beat the competition. There are, however, some good reasons to lower prices: A strategy to increase market share. Realistic Price -- Substantially higher than Base Price. Top of the quality range in your field but still competitive while offering good value and service to your customers. Sometimes you have to increase prices in order to cover, for example, increased cost of materials, labor, etc. When an increase is necessary ease the pain for your customers by considering the following: Notify your existing customers of the increase and, if possible, give them an opportunity to purchase at the existing prices. Try and advertise the increase along with "new and improved" products or services. Give the customer something in return for the increased costs. For example, free shipping with orders above a certain value. If possible, delay the increase for existing customers. Premium Price -- You position your product for the "elite group" and go after the client who wants and can afford the best. Daily Income Benchmark -- How Much Per Day You Need To Make. How do you determine daily amount? You need two figures... Base Price and Chargeable Time. Step 3 Consider some key pricing strategies Pricing to the Market Compare prices with your competitors for similar products and services. Set the price range that customers will expect. You can use that market price range--what is acceptable to the market--as a guide to set your prices. Businesses or people to whom you sell may also price to the market by telling you what they will pay for your product or service. As you keep records of actual costs, the cost approach to pricing will help you make sure all your costs are covered, which may not be true in a market approach to pricing. NOTE: Be careful about underpricing in order to compete or make sales. Use competitor's prices to establish the price range for similar products or services but don't underprice; if your true costs are higher, your final prices will have to be higher. Cost Approach to Pricing Price must cover all costs of goods/services sold, including production costs of supplies, materials, fixed overhead, and time/labour, plus a profit. Costs should include costs of production, labour and non-labour, including overhead or fixed costs as well as supplies and materials. Use this simple formula in setting a price (per unit): Total Costs of Production Per Unit + Desired Dollar Profit Per UnitBusinesses can set different profit rates, for example 15% profit on supplies and materials, 20% profit on labour/time, and 25% profit on overhead. These more complicated approaches to pricing usually emerge in response to the special needs of a particular business. If your research reveals that similar products or services are available on the market at a cost much lower than what you could offer, you may have to either adjust your profit margin, the return you expect, or decide to provide enough specialized service or selection that the market will pay the extra. Alternatively, you may be forced to conclude that you cannot afford to make this item or provide this service and look for something else to do. NOTE: Remember to cost materials at the level it costs to replace them - NOT at original prices; include salaries as a business expense; include interest in your business cost calculations -- interest that could have been accrued had the money used in the company been invested elsewhere (i.e. a bank); make allowances for future refunds, servicing, bad debts, amortization of capital costs of equipment or machinery. Calculating actual costs is the only proven way to make sure your prices cover your costs. Labour/time charges are to be covered partly in the costs of production and partly as a salary in the fixed/operating or overhead costs. In summary, key points to consider in setting prices are: marketing strategy and your immediate goals competitors' prices, and the market market demand for the product and consumer buying trends need to cover costs and provide an adequate profit. Step 4 Price your product and review regularly Don't guess or do your pricing on a whim. Take time and go through the process and you'll be on the right track to a more successful and profitable business. The biggest mistake small businesses make concerning pricing is not reassessing pricing on a regular basis. The marketplace is constantly changing making it mandatory you keep a close watch on your pricing. Raise or lower prices as necessary keeping the above suggestions in mind. Whatever route you choose, even a small increase in price can have a big positive effect on the bottom line-especially if you're a high volume producer, notes co-authors Dolan and Simon. If Coca-Cola raised its prices 1% across the board, the company's bottom line would rise by 6.4%, they write. Remember that you can always increase your price. Learn more at http://www.my1stbusiness.comBen Botes MSc. MBA, is an Entrepreneur, Speaker, Writer, Coach and academic. He is the founder of My1stBusiness.com, a web portal dedicated to 1st time business leaders and entrepreneurs. He is also the Co-founder of South African Business Hubs, Business support Hubs and incubators for the new breed of South African Entrepreneurs. Visit the sites for contacts, networking, a MarketPlace, hundreds of free Micro Modules, Tele-classes, Resources and Coaching designed for you to succeed with your business.Join the My1stbusiness.com Reseller Program and earn 40% referral commission http://www.my1stbusiness.com/affiliate Read Ben's Blog at http://www.my1stbusiness.com/weblog
MORE RESOURCES:
Google News |
|
|
|
RELATED ARTICLES
Great Marketing is Like Making a Great Movie KNOW YOUR AUDIENCEThe Oscars will be handed out soon, and it's a perfect time to keep this in mind: If you're a business owner or manager, it's wise to think of yourself as a great film director who's telling a story. Having directed films, stage, television, and stage productions we noticed that the principles of great directing or filmmaking apply exactly to great marketing. Image is Key to Your Marketing Success In virtually any business first impressions are lasting impressions. Most people have heard this statement for years, and yet some people completely ignore the first impression they are conveying to potential customers or clients. The Art of the Business Card Use a business card as a note pad for recording important information.I am sometimes asked why I make such use of business cards. The X Factor So you've invested more time than you ever believed possible on your website and in optimizing the pages for the search engines. Having sacrificed weekends and holidays, you've ensured that your site ranks in the Top 10. Overcoming Resistances To Marketing a Practice-Part 2 In Part 1 of this article, "Resistances to Marketing a Practice" the seven most common resistances helping and healing professionals (counsellors, therapists, naturopaths, homeopathetic doctors, massage therapists, body workers, etc.) have to marketing a practice were identified. How to Write Irresistible Promotional Pieces that Attract More and Better Clients Whether you're creating a sales letter, a brochure, a newsletter, or any other business promotional piece, you need to write in a way that not only explains your product or service, but that also compels your prospects to contact you. A well-written promotional piece entices people to seek out more information, whether it be via a phone call, an e-mail, or an in-person visit. Eliminate Your Competitors With 2 Simple Steps In business, having competitors goes with the territory. There's almost always someone selling the same product or service you are selling, or at least trying to solve the same customer problem you solve. The YOU Factor I don't mean you, I mean the YOU that is your client.Let's examine memorable tag lines in advertising. Your Marketing - From The Couch To The Cash Register When you put time or money into any marketing plan, your only objective is to MAKE A SALE. Are you sure your marketing is going to get your customer from their couch to your cash register?When somebody hears your message or sees your logo from some medium you have created, what does the path from that first 'touch' to your cash register look like?We call this path the yellow brick road. 5 Ways to Market for Immediate Results Sales are down, and I need more customers now! Sound familiar? Maybe you are the one who said it. I know what you're thinking, there's no magic pill for delivering immediate results and no spontaneous marketing effort that will skyrocket sales. Uncover Your Hidden Markets Want a simple, low-cost way to boost your sales? Just uncover the narrowly defined sub-markets hidden in your main market. Then create special versions of your advertising to focus on the specific needs of prospects in these hidden market segments. Creative Online Marketing For Salespeople and Business Professionals New to a sales career? Want to market yourself but don't have the money to do so? Tired of cold calling and prospecting? Wish there were an easier way to get the word out about your services?Does this sound like you? This was what I felt like when I got my first sales job selling copiers ten years ago. My sales manager back then was into the traditional methods of getting new business; that is, prospecting, cold calling, booking appointments, doing product demonstrations, and closing sales. Tricks of the Trade: Design your Booth for Maximum Impact The fight for your customer's attention at a tradeshow has never been so intense. Budget cutbacks in the travel sector means that buyers spend less time than ever at shows. Take a Leap! How To Take Your Business To New Heights Take a moment to reflect on the current reality of your business. Is it everything you dreamed it would be or is it more like a nightmare?Regardless of the current reality, your business can always improve. Non-Aggressive Marketing Ideas for Enterpreneurs Do you cringe at the thought of trying to promote your business ? Does it feel like "selling yourself" or egotism? Many individuals are not comfortable with marketing dimension of running a business.This leads to an inner frustation for many and inner conflicts. Overview on Qualitative Data Collection Techniques in International Marketing Research This article is meant to be a brief review and reminder of some valuable yet often bypassed techniques to collect data on international markets and consumers.When thinking of market research, surveys are most likely the first technique that comes to ones mind. Money Making Real Estate Marketing Ideas Real estate marketing is a lot simpler than most Realtors make it out to be. Some equate expensive products and services with quality. Six Essential Principles for Marketing to Women Business Owners Marketing to women entrepreneurs is not difficult. You just have to follow six easy, but essential, principles. 10 Effective Ice Breaking Questions Whether you go to a Chamber of Commerce event, a PTA meeting, the racquetball court, the local health club, or practically anywhere else, opportunities to network present themselves constantly. But there are fears which present themselves as well. Are You Playing Checkers or Chess? When you think about how to attract more clients for your professional services, are you playing checkers or chess?You're playing checkers when you..
|
| home | site map |
| © 2006 |
