23/03/2017
*Pricing strategies for your small business – Part 3*
*COSTS: How Much Profit Can You Make At That Price?*
To survive and succeed in business, you need to make profit. Profit means that you’re selling your products or services at a price that is higher than the amount it cost you to make the product or deliver the service. Before you set a price for your product, you need to be very sure that it covers your costs and will make you a profit. Apart from the cost of making a product, you also need to know how many products you need to sell in order to turn a profit.
The problem is, many entrepreneurs just set a price that looks good without first checking if the price covers their costs and will be profitable. If you set a price that favours your customers, but is bad for your business, it will only be a matter of time before you won’t have a business anymore.
Just to be sure that you fully understand what your costs are, it’s important that I share some basic knowledge about costing with you.
There are essentially two main types of costs you should consider. Here they are:
_Direct costs_ – These are the material and labour costs that are directly involved in the production of a product or service. For example, if you produce fruit juice for sale, the cost of the raw fruits you bought from the local market and your transportation to and from the market will be calculated as direct costs for the production of the fruit juice you sell.
_Indirect costs (or “Overhead” costs)_ – These are costs that often cannot be directly traced to the products or services you sell. Things like insurance, security, bank charges, electricity, telephone bills etc. are categorized as indirect costs.
_Lesson for entrepreneurs_
As long as you’re not in business for charity, you have to make profits to survive. Period! And one of the most important steps to determine the best price to set for your product or service is knowing how to calculate your costs. If your cost is more than your price, it’ll only be a matter of time before you run out of business.
*DEMAND: How Hungry Is Your Market?*
More than 99 percent of consumers only buy products and services they need or desire. Why buy something you don’t need or desire? But there are times when people are ‘forced’ to need and desire certain products and services. In such periods, the demand for these products and services skyrocket beyond the supply in the market. When such events occur, it’s usually an opportunity to raise prices!
For example, during festive seasons like Christmas, New Year and other religious and national celebrations, the demand for food products automatically increases. Why? Because more people than usual will want to buy foods like rice, chicken, drinks etc. to celebrate with their families.
To get the best price for product or service, it’s always a good strategy to target periods of high market demand. Is there an event, trend, government policy or occurrence that could lead to a massive growth in the demand for a product or service?
_Lesson for entrepreneurs_
By targeting times of scarcity or excess demand, you could increase your pricing as a strategy to make more profits. These opportunities are not available throughout the year so it makes perfect sense to exploit it the most you can.
*Business Idea For The Day*
Sell water aka mineral water. Pure Water Manufacturing Business. You can either package in sachet or plastic bottles. You can also sell flavoured water. Your packaging materials must also be treated such that any impurities must be removed. In starting this business, you need to have a good environment, factory, treatment plant and equipment, tanks, bore-hole, pumping machines, packaging machines, generators, distribution vehicles, etc.
_*A visionary company doesn't simply balance between idealism and profitability: it seeks to be highly idealistic and highly profitable. A visionary company doesn't simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement.
