HOW TO PRICE YOUR PRODUCTS AND SERVICES
HOW TO PRICE YOUR PRODUCTS AND SERVICES
Before setting your prices, you must understand your product's market, distribution costs, and competition. Remember, the marketplace responds rapidly to technological advances and international competition. You must keep abreast of the factors that affect pricing, and be ready to adjust.
Retail Cost and Pricing: A common pricing practice among small businesses is to follow the manufacturer's suggested retail prices. The suggested retail price is easy to use, but it can cause problems. It may create an undesirable price image, and it doesn't consider the competition.
Competitive Position: Another approach is a strategy in which a firm bases its price on those of its competitors. A small retailer should compare prices
with a similar store. Do not try to compete with a large store's prices, because they can buy in larger volumes and their cost per unit will be less. Instead, highlight other factors, like customer service. Customers will often pay more for merchandise if they get courteous service.
Pricing Below Competition: Many vendors have been very successful using this pricing strategy. Since this strategy reduces the profit margin per sale, a firm needs to reduce its costs and:
Pricing Above The Competition: This strategy is possible when price is not the customer's greatest concern. Nonprice considerations important enough for customers to justify paying higher prices include:
Price lining has many advantages:
find this a desirable pricing strategy for sales and year-end clearances.
Service Costs And Pricing: Every service has different costs. Many small service firms fail to analyze their services' total cost, and therefore, fail to price
them profitably. By analyzing the cost of each service, prices can be set to maximize profits and eliminate unprofitable services.
Service Cost Components: Material, labor and overhead make up the total cost of any product or service.
Material Costs: 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.
Labor Costs: This is the cost of the work that goes into the manufacturing of a product. An example is the wages of all production line workers.
The direct labor costs are derived by multiplying the cost of labor per hour by the number of man-hours needed to complete the job. Remember to use not only the hourly wage, but also include fringe benefits. These include:
the costs semiannually, including increased executive salaries and other projected costs.
A cost lid must always be used in preparing a bid or quoting a job. Include shipping, handling or storage in the total material cost. Figuring Costs And Profits For A Consultant Service: Pricing services where your own labor or expertise is used is different from pricing services that use materials and other labor. For instance, most consultants price their services by the hour. Senior consultants charge more for their time than do their less experienced counterparts. Remember to charge for an adequate number of hours. Travel time is usually listed as an extra charge.
It is unlikely that all of your time will be billed to clients. Therefore, hourly or contract fees must be set high enough to cover expenses during slow periods. That is why one-half of the total normal working hours for a given year are used in figuring overhead rates. Try to obtain long term, monthly, or contract assignments when possible.
HOW TO PRICE YOUR PRODUCTS AND SERVICES - To learn more about this author, visit Joe Dager's Website.
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The primary goal of business is to make a profit. Many small businesses fail to do so because they do not know how to price their products or services. Pricing is the critical element in achieving a profit and is a factor that all firms can control.
Before setting your prices, you must understand your product's market, distribution costs, and competition. Remember, the marketplace responds rapidly to technological advances and international competition. You must keep abreast of the factors that affect pricing, and be ready to adjust.
Retail Cost and Pricing: A common pricing practice among small businesses is to follow the manufacturer's suggested retail prices. The suggested retail price is easy to use, but it can cause problems. It may create an undesirable price image, and it doesn't consider the competition.
Competitive Position: Another approach is a strategy in which a firm bases its price on those of its competitors. A small retailer should compare prices
with a similar store. Do not try to compete with a large store's prices, because they can buy in larger volumes and their cost per unit will be less. Instead, highlight other factors, like customer service. Customers will often pay more for merchandise if they get courteous service.
Pricing Below Competition: Many vendors have been very successful using this pricing strategy. Since this strategy reduces the profit margin per sale, a firm needs to reduce its costs and:
- Obtain the best prices possible for the merchandise;
- Locate the business in an inexpensive location or facility;
- Closely control inventory;
- Limit the lines to fast moving items;
- Design advertising to concentrate on "price specials;"
- Offer no or limited services.
Pricing Above The Competition: This strategy is possible when price is not the customer's greatest concern. Nonprice considerations important enough for customers to justify paying higher prices include:
- Service considerations: delivery, speed of service,satisfaction in handling customer complaints, knowledge ofproduct or service, helpful and friendly employees.
- A convenient or exclusive location,
- Exclusive merchandise.
Price lining has many advantages:
- Reduced errors by sales personnel;
- Ease of selection for customers;
- Reduced inventory;
- Reduced storage costs, due to smaller inventory.
find this a desirable pricing strategy for sales and year-end clearances.
Service Costs And Pricing: Every service has different costs. Many small service firms fail to analyze their services' total cost, and therefore, fail to price
them profitably. By analyzing the cost of each service, prices can be set to maximize profits and eliminate unprofitable services.
Service Cost Components: Material, labor and overhead make up the total cost of any product or service.
Material Costs: 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.
Labor Costs: This is the cost of the work that goes into the manufacturing of a product. An example is the wages of all production line workers.
The direct labor costs are derived by multiplying the cost of labor per hour by the number of man-hours needed to complete the job. Remember to use not only the hourly wage, but also include fringe benefits. These include:
- social security,
- workers compensation,
- unemployment compensation,
- insurance,
- and retirement benefits.
- clerical,
- legal
- janitorial services & supplies,
- Insurance
- taxes,
- rent,
- advertising
- transportation
the costs semiannually, including increased executive salaries and other projected costs.
A cost lid must always be used in preparing a bid or quoting a job. Include shipping, handling or storage in the total material cost. Figuring Costs And Profits For A Consultant Service: Pricing services where your own labor or expertise is used is different from pricing services that use materials and other labor. For instance, most consultants price their services by the hour. Senior consultants charge more for their time than do their less experienced counterparts. Remember to charge for an adequate number of hours. Travel time is usually listed as an extra charge.
It is unlikely that all of your time will be billed to clients. Therefore, hourly or contract fees must be set high enough to cover expenses during slow periods. That is why one-half of the total normal working hours for a given year are used in figuring overhead rates. Try to obtain long term, monthly, or contract assignments when possible.
HOW TO PRICE YOUR PRODUCTS AND SERVICES - To learn more about this author, visit Joe Dager's Website.
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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Dianne CramptonDianne Crampton is an executive leadership coach, team culture consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. Dianne's contribution to the 2010 Pfeiffer Consulting Journal (an imprint of John Wiley and Sons Publishers) entitled TIGERS Hearted Teams is available in November 2009. Her new book TIGERS Among Us: 5 Winning Business Team Cultures And Why, Three Creeks Publishing will release in March 2010. To receive publishing discounts, subscribe to the free TigerTracks Newsletter here. - Visit Dianne Crampton's Website |
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