Accurate product pricing is critically important in today’s environment.
An understanding of product pricing is with a complement to knowing what it costs to run your business. After all expenses are accounted for, you must add a profit margin to derive a profitable sales price. Calculate the profit so that you are able to sell the product and make money. This underscores the importance of knowing your books and basic accounting principles and how that knowledge interacts with pricing.
For many businesses, competing on price is a fool’s errand in business operations. Anyone can sell something at a cheaper price than you can. Most if not all of those vendors eventually go out of business, a direct result of inability to make money on their product or service.
Trade publications, industry studies and comparison checks of your local competitors will help you determine the ideal price to charge for a certain product or service. Before you run those traps, however, you must know all of the fixed and variable costs that you incur each month to run and operate your business. Knowing your costs allows you to determine a reasonable profit level to add to derive the final selling price of the product, good or service that you provide. Often times, the price of some competing service or product may be vastly different. The logical question is, “Why?” Perhaps a dentist has a new building and equipment; she must pay for that new building and equipment, so it only follows that she may have to charge more than an established service provider whose office overhead is less, perhaps by being located in mature part of town. Yes, she provides the same level of service or product delivery. But here, you can beat her on price and still make money. Pricing is critical to a successful business operation.
If you are not sure of your pricing strategy, let’s begin a conversation. Contact us here or give us a call 817-386-3032 today.