Join Jim Stice for an in-depth discussion in this video Product pricing, part of Finance Essentials for Small Business.
- What can be so hard about pricing a product?…Don't you just figure out what your costs are,…and then add some sort of markup for profit?…Oh, that it were that easy.…If your price is too high, regardless of your cost,…someone in the market will underprice you,…assuming that the quality of product or service is similar.…In many cases you will be a price taker,…and you will have to manage your cost…so that you can earn a profit given a certain price…as determined by the market.…Now let me say that again,…in most instances you don't price…your product to cover your costs,…instead you determine if given a certain market price…your cost structure is such that you can earn a profit.…
The biggest mistake new business owners make…in product pricing is not considering and covering…all of their costs when entering a market.…Now, it is true that when you are initially…trying to penetrate a market you may be willing…to lose a little money to gain market share,…but that strategy is not sustainable over time.…Over the long term you must cover all…
- Describe the most common reason small businesses fail.
- Identify two reasons why your business plan needs to budget cash inflows and outflows for the first six months of your business’s operation.
- Write the formula to forecast cash flow for the first four months of your small business.
- Explain the first step you should take if your new small business is not making the profit you anticipated.
- Identify the most important thing to keep in mind if you are considering faster growth for your small business.