Pricing For Profit

Pricing For Profit



Pricing For Profit
To improve your profitability you must either make a​ larger gross margin on each dollar of​ sales or​ sell more without increasing your fixed costs. it​ goes without saying that the greatest improvement will be realised when you achieve both simultaneously.
Remember your gross margin is​ the difference between the price of​ your product and what it​ costs you to​ buy or​ make it. Therefore, the only way to​ increase your gross margin is​ to​ sell at​ a​ higher price or​ buy at​ a​ lower price.
In most instances but not all! you will have limited scope to​ buy at​ a​ lower price. For this reason your selling price is​ the critical variable.
Without doubt, the biggest single barrier preventing small business managers from making an acceptable profit is​ their refusal to​ charge a​ price which will enable them to​ achieve this. You are not in​ business to​ match the price your competitors set, but you are there to​ service your customers.
In fact, studies of​ the factors people regard as​ important influences on their decision to​ deal with a​ particular business indicate that product and price are relevant in​ only 15% of​ cases.
It is​ the lazy managers competitive strategy to​ try to​ hold or​ win market share on the basis of​ price discounting. it​ is​ relevant and applicable only in​ the one situation where you have both a​ definite cost advantage either variable or​ fixed over your competitors and your product or​ service is​ one where customers are very price sensitive.
For example, if​ your gross margin is​ 30% and you reduce price by 10% you need sales volumes to​ increase by 50% to​ maintain your profit. Rarely has such a​ strategy worked in​ the past and its unlikely that it​ will work in​ the future.
The service you offer or​ the unique way that you add value to​ the clients you support are all sustainable ways to​ differentiate your business and support an ongoing pricing for profit strategy.




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