PRICING
YOUR PRODUCT OR SERVICE
The
primary goal of business is to make a profit.
But many businesses fail to
do so because they don't know how to effectively price their products or
services. Pricing is a pivotal element in achieving a profit and is one factor
that businesses can control.
Before setting prices, you must understand your service or product's market,
distribution costs, and competition. Remember that the marketplace responds
rapidly to technological advances and international competition so you'll
constantly be keeping abreast of the factors that affect pricing, being ready to
quickly adjust.
Retail Costs And
Pricing:
A
common pricing practice among businesses is to follow the manufacturer's
suggested retail prices. Though suggested retail pricing is easy to use, it may
be problematic. Merely pricing the product or service in this way may either
create an undesirable price image, or not be mindful of the competition.
Competitive
Position:
Another
pricing strategy takes a little more research and business management ability.
Consider who your competition really is (another business) and set your pricing
accordingly. Don't try to compete with a larger company's pricing, Why? Large
firms buy and contract in large volumes and with a broader customer base so
their cost per unit or an increment of time will be less. Instead, highlight
other factors, like customer service. Customers will often pay more for a good
or service if they get courteous, prompt and personal service. Make it a goal to
be a friend to all your customers so that they feel like a name, not a number.
Pricing Below
Competition:
Let's
say you want to hit the pricing issue head on regardless of the giants in the
marketplace. Many shrewd vendors have been quite successful using this pricing
strategy. Since this angle reduces the profit margin per sale, your
business should reduce its costs only if you can fulfill other factors.
These include obtaining the best prices possible for the merchandise, locating
the business in an inexpensive location or facility, closely controlling stock;
limiting your lines to fast moving items. If you're going to "price at the
lower end of the market," it also makes sense to design advertising to
concentrate on "price specials" and to keep special service to a
minimum. Remember that time is money.
Pricing Above
the Competition:
This strategy is always any business owner’s dream and occurs when price is
not the customers' greatest concern. You can concentrate on developing a loyal
network of buyers. What considerations are important enough for customers to
justify paying higher prices? These include service pluses such as delivery,
speed of service, satisfaction in handling customer complaints, knowledge of
product or service, and, above all, helpful and friendly employees. Also
consider the most convenient location. Also keep in mind the pull of exclusive
merchandise that you have advertised.
Service,
Material and Labour Cost Components:
Materials, labour, and overhead make up the total cost of any product or service
whatever your business. This is the cost of materials found in the final
product. For example, the wood and other materials used in the manufacturing of
a chair are direct materials. Needless to say, labour is the cost of the work
that goes into the manufacturing of a product. The direct labour costs are
derived from multiplying the cost of labour per hour by the number of hours
needed to complete the job. Remember to use not only the hourly wage, but also
include other employee costs you have to incur such as ACC Levies, holiday pay
and any other employee benefits.
Overhead Costs:
Any costs not readily identifiable with a particular product or service should
be considered overhead. These include repairs and maintenance, heat and light,
depreciation, insurance, administration wages, accounting and legal services,
rent, advertising, bank charges, interest and transportation are also
overhead costs.
Your pricing structure and policy are major components of your public image and
are crucial to securing and keeping your clientele. Cost, plus operating
expenses, plus desired profit, equals the price of the good or service you sell.
The key to success in a business is to have a well-planned strategy. Establish
your policies and constantly monitor prices and operating costs to insure
profit. Accuracy increases profits!
If we can assist further, please email TotalAccounting as follows: