14 Jun Pricing Products and Services – Excerpt
The content below contains a few excerpts from the featured article in our Spring 2017 Member Newsletter. To read the full 5 page article become a member, and we will send the full 16 page newsletter right out to you!
The Basic Equation
Per Hour Target Income
Per Unit Target Net Income
The Going Rate Trap
Making Money Off Everything Trap
Fear of Raising Prices
Preparing a Quotation
Sales and discounts
Excerpt – Introduction:
Pricing Products and Services
Appropriate pricing is essential to business success
By Irwin Post
“How much should I charge?” and “How much do you charge?” I’m frequently asked these questions by people thinking about starting a new business or getting into a new product line or service. Prices are a common topic of conversation for those of us already in business, and we frequently compare our prices to those of others.
Financial success in business amounts to bringing in more money than goes out. If pricing isn’t realistic, it doesn’t matter how hard you work: the business won’t last long. Remember, it’s not how much money that goes through your business that is important, it’s how much money sticks!
The Basic Equation
Gross Income – Expenses = Profit
The gross income is all the income of the business. It is a function of the volume of goods sold, the services provided and the hourly or per unit receipts for them.
The expenses are all the costs of running the business. These include overhead costs such as insurance, office, advertising, property taxes and depreciation; operating costs such as labor…..
Excerpt – Fear of Raising Prices:
In the past I was very reluctant to raise my prices because of fears that business would dry up. In talking with other small business people, I found that I was not alone — fears of losing business seems to be almost universal.
My costs, of course, keep rising. Prices on some things seem to creep up gradually. Other increases, such as insurance and gasoline, can happen quickly. Crunching the numbers shows one has a choice: keep prices the same and earn less (and eventually go out of business) or…
Excerpt – The Going Rate Trap:
It is very common for small business owners to set their prices by the “going rate method”. This method is easy to apply: simply find out what other businesses in your area charge for whatever your products or services are, and charge the same amount. No need for keeping track of expenses and time, or doing tedious calculations. After all, the thinking goes, if these other businesses are making a go of it at those prices, I should be able to also. Some people even go a step further, and charge a bit less, expecting that lower prices will bring more business.
The going rate trap causes many business owners to be disappointed with their income and to go out of business. One reason is that other business owners may have very different income expectations….