Articles
Newsletters
Home 
Business Small Business Your Pricing Policy and Profitability
Business Small Business Your Pricing Policy and Profitability
| Your Pricing Policy and Profitability |
 |
 |
 |
| Written by Arman Sharpe |
| Saturday, 29 November 2008 11:09 |
|
The pricing policy you use in your business is an important factor when it comes to overall profitability. Selling goods at the highest possible profit margin does not necessarily generate the maximum profit. The maximum profit is the result of many factors including sales volume, product cost, operating costs and, of course, price. In many cases a price increase will result in lowering the total number of sales, but this doesn't necessarily mean lower total profits. In some case profit may actually be increased if sales volume does not drop to drastically. The reverse is also true. Lowering the price of goods will often increase the total number of sales but if sales are not increased enough total profits may be less. Knowing the cost per item of each product and your actual cost of doing business is of primary concern when developing your pricing policy. It may take some time to come up with the necessary information. Although you can't be expected to determine these numbers with complete exactness, it is important that your estimates be as close as possible to reality. It does, however, need to be fairly accurate since failing to calculate all actual costs properly to ensure that the profit margin is enough to cover those costs is a frequent cause of business failure. Many business owners actually end up selling their products at a loss without even knowing it. Before setting the price on any of your products you must estimate the cost of labor, raw materials, variable overhead costs as well as research and development. As costs fluctuate over time you may need to re-evaluate these numbers to make sure they continue to be accurate. Regardless of the strategy that is used to maximize profitability, the method for costing products is basic. It involves four main categories: Direct Material Costs, Direct Labor Costs, Overhead Expenses and Profit Desired. You can determine an items minimum acceptable price by combining these four factors. For a more thorough explanation of these factors visit the resource listed at the end of this article. Of course, pricing your product to achieve some level of profit is only one of the factors that needs to be considered in a business plan. Once you have figured out your costs, your break even point and your minimum profit requirements you will also want to consider your sales strategy. To succeed in a competitive market most businesses use three major sales strategies (sometimes all at the same time). Determining a products price involves many considerations. Even though many businesses try to compete on price alone this is not the only option. Often a business can avoid price wars by finding a market niche that is not being served well enough or by offering a more effective solution. No matter which approach you take, however, it is essential that you recognize and fully analyze all of the costs involved in your product to determine it's pricing. About the Author: For a more complete explanation of how to develop your pricing approach including examples and the 3 primary sales strategies most businesses use to develop a profitable pricing strategy visit the Top Business Resources Site. Kindly provided by MoneyHunter.org You are welcome to use this article on your own website, if you include the link just before this text. |
Members : 2300
Content : 2492
Web Links : 1
Content View Hits : 210392
Content : 2492
Web Links : 1
Content View Hits : 210392