Strategy 1: Get your pricing right
Determining the price to charge for a product is frustrating for most businesses. However, getting your pricing strategy right is critical to your success in business because it affects many areas of your business.
The pricing strategy impacts the type of customers attracted to your business, the quantity of product sold, how the product is perceived, product promotion and your profit.
There is no single way of determining the best pricing strategy for your business. The following is a list of factors that you may consider when developing your pricing strategy:
- The type of customers you are targeting.
- The positioning of your products in the market.
- The relationship between the price and quantity sold.
- How you will promote your products.
- How you will distribute your products.
- The costs associated with your products including the fixed and variable costs.
- Your competitors and their pricing decisions.
- The objective of your pricing strategy.
- The method of calculating price.
Strategy 2: Reduce your cost of goods sold
This strategy complements the first strategy ‘get your pricing right’. The gross profit margin is the difference between the price you sell your product for and the price you paid for it.
Increasing the margin between the two will increase your profit and your cash flow. There are two ways to increase your gross profit margin: increase your price (as discussed in strategy 1) and/or decrease the cost of goods sold. The cost of goods sold is the cost of the product to you that was sold to your customers.
Examples of ways to reduce your costs of goods sold:
- Negotiate with your suppliers for a better price if you buy in bulk. Only use this strategy if you can turn over the stock quickly.
- Negotiate with your suppliers for a discount if you pay early if there isn’t a discount already in place.
- Shop around with other suppliers to ensure you are getting the best value (this is not necessarily the best price).
- Purchase new equipment or implement new processes to produce the goods more efficiently.
Strategy 3: Control your expenses
Regularly review your expenses by comparing them against your budget and prior periods. If an expense is greater than budgeted or than the previous year then investigate the reason for the increase.
Examples of how to control your expenses:
- Compare expenses against your budget.
- Compare expenses against the previous year or period.
- Compare expenses as a percentage of sales.
- Train your employees to be thinking about how expenses can be reduced. Reward them forideas that reduce expenses. Rewards don’t have to always be monetary. Be creative with the reward system.
- Review the transaction listing to understand each expense.
- Prepare regular financial reports.
- Require quotes from various suppliers.
- Rearrange annual payments into small payments. This generally costs more and should only be used when needed. Revert back to annual payments once you are able.
- Implement performance measures to monitor your expenses. For example, measure the costs of vehicles on a cents per kilometre basis.
End #Successful Business#business-tipsndtricks.blogspot.com.
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