PRICING STRATEGIES FOR SMALL
BUSINESS
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, 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.
LOWEST PRICING DOES NOT
ALWAYS WIN
Having the lowest price is not a strong position for small business.
Larger competitors with deep pockets and the ability to have lower
operating costs will destroy any small business trying to compete on
price alone. Avoiding the low price strategy starts with looking at the
demand in the market by examining three factors:
- Competitive Analysis: Look at the whole package
competitors offer. Are they serving
price-conscious consumers or the affluent group? What are the
value-added services if any?
- Ceiling Price: The ceiling price is the highest price the
market will bear.
- Price Elasticity: If the demand for your product or service
is less elastic, you can then have a higher ceiling on prices. Low
elastic demand depends on limited competitors, buyer's perception of
quality, and consumers not habituated to looking for the lowest price in
your industry.
In setting prices, it is
necessary to review
your costs and profit goals as set in your business plan or financials.
The low price strategy is best avoided by small business but there are
conditions such as a price war that can drag a company into the lowest
price battle.
AVOIDING A PRICE WAR
A price war can wreck havoc in any industry and leave many
businesses, out of business. Keep the below in mind to
evade a deadly price war:
- Enhance Exclusivity: Products or services that are exclusive
to your business provide protection from falling prices.
- Drop High Maintenance Goods: There may be products or
services in your business that have high customer service and
maintenance costs. Drop the unprofitable lines and find out what
customers don't want.
- Value-added: Find value your business can add to stand out in
the marketplace. Be the most unique business in the category.
- Branding: Develop your brand name in the market. Brand name
businesses can always stand strong in a price war.
USEFUL
SITE FOR PROPERTY INVESTORS
The following is a very useful web
site for property investors:
www.dbh.govt.nz
There's plenty of property related,
landlord & tenant information on it.
Amongst this is useful current
market rent data, based on recent bonds submitted to the Department. Access
this by going to Sector Information/ Tenancy Market Rent Information.
CASH FLOW IS
PARAMOUNT
One of the most important characteristic of any business is that cash
flow really is of ultra importance. Employees can't wait on
for their pay until your customers pay. Suppliers may not be willing to extend your credit any further
and you may not be able to purchase the goods you need in order to
deliver to your customer and receive payment.
More businesses fail for lack of cash flow than for lack of profit.
Why is this? Two main reasons:
- Business owners are often unrealistic in predicting their
cash flow. They tend to overestimate income and underestimate
expenses.
- Business owners fail to anticipate a cash shortage and run
out of money, forcing them to suspend or cease operations, even
though they have active customers.
Cash flow is the difference between inflows (actual incoming
cash) and outflows (actual outgoing cash).
HOW TO PROJECT CASH FLOW
- Start with the amount of cash on hand - your current bank account
balance(s) plus actual currency and coin.
- Make a list of anticipated inflows - customer payments, collection
on bad debts, interest or investment earnings, loan financing etc. List not only
the amount, but also when it will be coming in.
- Make a similar list of anticipated outflows - wages
and salaries, monthly
overhead, payments on accounts payable or other debt, taxes payable
or set aside for future payment, equipment purchases, marketing
expenses, etc.
You can put it all into a worksheet in chronological order. If at any point
you have negative cash balance, or even a very small one, you have a
potential problem.
It's best to be extremely conservative, i.e., estimate inflows lower
and sooner and outflows higher and later. If you end up with a cash
surplus, it can cover you for an unanticipated cash shortage in the
future, or be invested in something to help grow your business - you
won't have a problem finding something useful to do with the money. On
the other hand, if you end up with an unanticipated cash shortfall, you
can end up damaging your credit, losing suppliers, having to cut
employees, or out of business entirely.
TRACK YOUR ACTUALS
Keep a copy of your forecast, but track your actual cash flow as
well. Comparing it to your forecast will help you realize where you have
misestimated or overlooked something in your planning.
STUDENT
LOAN REPAYMENTS IF TRAVELLING OVERSEAS
SHORT TRIPS - UP
TO 6 MONTHS (183 DAYS)
You'll still be eligible for an interest-free student loan while you're
away if you were in New Zealand for at least 6 months before you went
overseas.
If you earn any money while you're overseas
there is a requirement to advise IRD after the end of the tax year (31 March) as your student loan repayments are
based on your income.
LONGER TRIPS- 6
MONTHS (184 DAYS) OR MORE
If you're planning on going overseas for 6 months or more, it's important
to let IRD know so they can update your account details before you go.
In most cases, you won't have an interest-free student loan but you'll be
eligible for a repayment holiday of up to 3 years.
You won't need to make any repayments while you're on a repayment
holiday, but because interest will still be charged on your student loan,
it's a good idea to make repayments to help you keep on top of your loan.
The interest rate from 1 April 2009 to 31 March 2010 is 6.8%.
EXEMPTIONS- ENTITLEMENT TO AN INTEREST
FREE STUDENT LOAN IF YOU ARE OVERSEAS FOR 6 MONTHS OR MORE
You may be eligible for an interest-free student loan while you're
overseas, if you meet certain criteria, by applying for an exemption. If
you're eligible, you'll need to send IRD a letter and include the relevant
proof for the exemption you're applying for.
MAKING REPAYMENTS WHEN YOU ARE OVERSEAS
You can make repayments while you
are overseas. There are a variety of ways. Contact IRD to
find these out
KEEPING IN TOUCH WITH YOUR LOAN WHILE
YOU ARE OVERSEAS
It's a good idea to register for online services (you'll need your IRD
number) as it allows you to check your loan balance and see any repayments
you've made whenever you want. It also lets you communicate with IRD by
secure email.
You can also nominate someone to act on your behalf while you're away,
especially if you're not going to have a fixed address overseas.
