The Last Three Money Secrets You Need To Know!
Over the last two weeks we have been talking about one of the big killers in your business, incorrectly pricing your products and services. I call this the silent saboteur because no one regularly talks about this and most small business owners like you are left to guess what they should be charging and hoping they are getting it right. So, here are the last three secrets you need to know about how to successfully price your products and services.
Know Your Revenue Target
You should have a revenue target for how much of a profit you want your business to make. Take that revenue target, factor in your costs for producing, marketing, and selling your product or services and you can come up with a price per product that you want to charge. Remember this is usually no more than 35 – 50 percent above your overhead costs, which include your costs of the item or service you are providing. If you only have one product, this is a simple process. Estimate the number of units of that product you expect to sell over the next year. Then divide your revenue target by the number of units you expect to sell and you have the profit margin at which you need to sell your product in order to achieve your revenue and profit goals.
If you have a number of different products, you need to allocate your overall revenue target by each product. Then do the same calculation to arrive at the price at which you need to sell each product in order to achieve your financial goals. Remember to not over price your item or service. The “use-value” to you customer should far exceed the “cash value” they pay you, but don’t under sell yourself either. Which brings me to my next point.
Know Your Competition
It’s also helpful to look at others in your industry. After all, your customer most likely will, too. Are the products offered comparable to yours? If so, you can use their pricing as an initial gauge. Look to see whether there is additional value in your product; do you, for example offer additional service with your product or is your product of perceived higher value and quality? If so, you may be able to support a higher price. Be cautious about regional differences and always consider your costs.
It may even be worthwhile to prepare a head-to-head comparison of the price of your product(s) to your competitor’s product(s). The key here is to compare net prices, not just the list (or published) price. This information could come from phone calls, secret shopping, published data, etc. Make notes during this process about how your company and products — and the competition — are perceived by the market. Be brutally honest in your evaluation.
Know Where the Market Is Headed
Clearly your not a mind reader, but you can keep track of outside factors that will impact the demand for your product in the future. These factors can range from something as simple as long-term weather patterns to laws that may impact future sales of your products. Also take into account your competitors and their actions. Will a competitor respond to your introduction of a new product on the market by engaging your business in a price war? A good example would be the way Samsung has gone after Apple. Samsung provides a lesser priced product, but so is the quality with an exceptionally high repair rate. Apple’s prices have remained largely unchanged while their customer service has become one of the best in the industry. So you will need to know what is more important to your particular market and what they are looking for, value or quality.
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Look below for a RELATED ARTICLES with critical information for you if you think you may have gotten it wrong with your pricing. I give you the key information you need to know how to make the right changes to get your product or service pricing right. I also have created a tool for you to help you create a business budget inside your copy of The Small Business Toolkit along with many other tools to help guide you and your business forward to success. We would love to have you join the conversation with your own tips or questions on our Twitter chat or you can simply Contact Us for a more personalized response. We love hearing from and what you are up to next!Have a comment or question about this week’s post? Let us hear from you! Post your own success stories or ask a question about how to move your own business forward to success! We love hearing from you and read every post personally! You can join the fun on our Twitter Chat and share your own success tips! If you are looking for more practical hands-on help we have two other resources for you. First, we have created an actual Small Business Toolkit for small business owners just like you to help you start and grow your own successful business and meet today’s challenges head-on with confidence. You can find yours right here.