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Your Business Plan and Pricing Strategy

Guest post by: Michiel Jonker

Article Overview: You need to consider your pricing strategy when writing your business plan. Pricing is one of the crucial decisions you would ever make in business.

Your Business Plan and Pricing Strategy

When you are busy writing your business plan, you need to pay attention to your pricing strategy. If you are trying to market something, costing your services/goods is, generally, one of the essential resolutions you need to take.

Given that the Internet offers thousands of choices to the shopper, you need to be at par with the competition. The prices that you ask will establish how long you can stay in your specific marketplace.

You need to obtain a comprehensible understanding about pricing. To what extent can you push it? How often do you need to assess your prices? A lot would depend on how you deal with this special phase of business.

You have to isolate a customer group to start with and then assess how much they would be willing to spend. In addition you also have to make sure that you yield some profit. And fairly often these two demands can be in clash with each other. People use different methods to set the prices of their goods. Some of them have a systematic foundation and some do not.

We will explore some methods in upcoming articles and how to address it on your business plan. One method, for example, works with an understanding of the production price tag, consumer expectations and other players in the field.

With this method cost is defined as the sum total of the expenses that you incur when manufacturing or producing a product (or hours spent when delivering a service). Expenses include cost of unprocessed material, equipment, packaging, distribution etc. Price is the amount consumers have to pay for - per unit of you service/goods.

For you to make a profit, the price should be more than the outlay (obviously). Your prices should be constantly higher than the cost if you are planning to run your company for an extended period of time, except in special cases. Sometimes you can lower the prices, to expand entry into a new marketplace for example.

Starting with prices which are lesser than your opponents' prices would make people notice you. And when you gather a modest figure of customers you can steadily raise prices! How much would customers pay for your services is exactly proportional to how significant and precious they think your service/product is. Of course your marketing approach and reputation in the marketplace will play a significant role in this regard.

Amid these two numbers, i.e. your cost and the price your consumers are willing to pay for your goods and services, lies your ideal price. If your price is a little lower than what your customers are willing to pay for your services, it would definitely work in your favor in the long run.

It goes without saying that, normally, your profit margin leaves little room for erosion - that is loss of profit. Profit erosion is an entrepreneur's worst nightmare. Profit erosion is the direct result of your risks you are facing. A business risk/threat that materializes causes loss or damage - with a negative financial impact on your profits as an end result. It is therefore recommended that you pay attention to profit erosion too when you write your business plan.

In our next article, we will address the issue of price sensitive buyers. To learn more about subjects like writing a business plan and to address issues like profit protection planning, please visit my BIO.

Enjoy this week of business!

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Article Tags: Business Plan, Pricing Strategy, Profit Erosion



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