Many people have incredible business ideas – perhaps even world-changing. And a lot of work goes into turning those ideas into a reality, driving buzz around the product, and storming towards a successful launch. But as soon as that launch date arrives, no one buys. You might be perplexed, confused, and unsure as to why this has happened. But then it will hit you – your pricing is all wrong.
Many first-time entrepreneurs fail to realise the critical importance of pricing. Get it right, and you could be on your way to great success. But achieving the right balance is a lot more complicated than you might think. It’s a tough job, and it is easy to get wrong – which, ultimately, can result in abject failure. With this in mind, here’s a rundown of everything you need to know about pricing your products or services.
First of all, it’s important to understand that products and services pricing has a few ground rules. First of all, you need to cover yourself regarding costs – the amount you spend to create a product or service – and you also need to make a profit. Furthermore, there’s a need to fit your business pricing into the wider market. Who else is selling similar products, and for how much? Is there a significant demand for your product, but little in the way of supply? Ultimately, however, getting the right price point is all about one thing – driving sales.
So, if you want to price your product or service correctly, you need an in-depth awareness and understanding of your audience. Market research will tell you lots about how much people will be interested in your product, and demographics could reveal the amount they are capable of paying. Ultimately, you will be pitching your product to one of three basic groups: people who don’t have much money; people who want convenience, and individuals who demand luxury or the very best service. You must understand which of these groups is your target before you even start sourcing raw materials.
The next step is to work out your costs per sale. And there are many expenses to consider. Raw materials, utility bills, rents for offices and factory space are obvious starting points. There’s the cost of manufacturing to think about, too, not to mention your employee’s wages. Shipping, inventory management, equipment and software programs – everything you use to get your idea from your head to the market needs to be accounted for and added to your cost of sale. Then it’s a case of working out how much you need to sell to break even, and how much you need to sell to turn a profit. However, we aren’t quite done yet on costs…
The bottom line
Another vital concept to grasp is that the best way to make more profit isn’t to make more sales – it’s to cut your costs. So, before you go ahead with production or introducing your service, think about if you can cut back on your expenses. Is your electricity bill too high, and could you reduce it by enforcing a more eco-friendly – and cost-efficient – policy? Is the expensive office you want as a base for operations really necessary, or could you find a cheaper place elsewhere? There are a thousand and one things you can do to stop wasting money, all of which will boost your bottom line and either a) increase your profits, too, or b) allow you to price more aggressively. Once you have a good grasp of your costs, we can move onto estimating a revenue target.
Estimating sales targets
When you have cut all the costs back to protect your bottom line, you will have a better idea of how much you could make. But, ultimately, it’s all about accurate estimation. You will need to look ahead over the next year or so and have a realistic – and informed – guess of how many products or service offerings you will sell. Once you have established this figure, you can start deciding on a price – but there is still a significant chunk of work to do.
Establishing your prices
You can decide on one of the several methods of establishing the perfect price point. Cost-plus pricing is typical in the manufacturing industry and is one of the easiest to work out. You figure out your costs as above, factor in your profit margin, and price your products accordingly. Bear in mind that this method requires pinpoint accuracy, as any missing costs could end up seeing your product losing money.
Demand price is also popular – especially among retailers and wholesalers. Demand pricing uses a primary method of buying and selling in bulk and lowering prices in accordance with sales volume. It is a tricky strategy to master, however, as it relies on a lot of liquidity in calculation and pricing.
The final two common strategies are markup and competitive pricing. Markup pricing is when you add a specific amount – usually a percentage of cost, not gross margin – to each sale. And competitive pricing involves looking at what everyone else in your market is charging and pricing your products and services accordingly.
Ultimately, pricing your products and services needs to be a fluid and flexible process. Your ideas of pricing on day one are likely to be a lot different by the time you come to launch. And the simple truth is that in the vast majority of markets, prices go up and down all the time, and you have to take those changes into consideration. The key to success is to keep on top of your pricing analytics, to ensure that you are making the correct decisions and avoiding losing money. The end goal is to do more of what works, and stop what isn’t – and always keep reevaluating those costs. Sometimes you will need to lower your price, but you may also benefit from raising it. If you are in the service industry, for example, it makes sense that as your knowledge and skills grow, so should your prices. Good luck!
How To Prepare For The Next Wave of the Outbreak
The Centre for Disease Control and Prevention (CDC) in the US warned that a second wave of the COVID-19 infection is inescapable and may cause more harm. The WHO also stated in March that COVID-19 is far from over and that a second wave is respectable.
With as many as 100,000 new cases reported since late May, the new wave may be upon us now. The global count of infected persons has exceeded 9 million, and COVID-19 deaths have crossed 480,000. The Director-General of WHO urged countries to be creative and pragmatic in finding solutions as they ease the lockdown restrictions and get back to business as usual amid the spread of infection.
The Second Wave
There has been a surge in new COVID-19 cases. On June 21 the WHO reported an increase in the global number of new COVID-19 infections. 183,020 new cases were reported mostly in South Asia, South America, and North America. Beijing recently reported 158 fresh cases.
In the US nearly 20,000 new cases were reported. India reported 15,968 new cases on June 23. There are also reports of new COVID-19 cases in Australia, Japan, Mexico, and Brazil. South Korea, which contained the virus in March, now records 40-50 new cases per day since late May. South Korea’s Director of the Centre for Disease Control and Prevention stated that the country is going through a second wave of the virus.
The WHO believes that the new cases could be a result of easing lockdowns and travel restrictions too early.
Currently, we don’t have a proven vaccine for COVID-19. The WHO is collaborating with pharmaceutical companies and research institutions to develop one. As of June 24 a total of 141 options were in various stages of development.
In a report by the WHO on June 24, 16 candidate vaccines are in the clinical evaluation stage. One of these is called ChAdOx1-S, and is already in phase 3 of clinical evaluation. It was developed by the University of Oxford and AstraZeneca. The trials of the test vaccine will be conducted in July. More than 4,000 participants have enrolled for the trials in the UK.
Another 30,000 participants enrolled for the ChAdOx1-S trials in the US. Simultaneous trials will also be conducted in other parts of the world, including South Africa. Some of the other vaccine candidates are in phase 2 of clinical evaluations. These include Adenovirus Type 5 vector developed by CanSino Biological Inc. and Beijing Institute of Biotechnology. Another of these is the LNP-encapsulated mRNA developed by Moderna and NIAID.
Scientists at the University of Oxford reported in early June that the Steroid dexamethasone reduces mortality rate in patients with severe COVID-19 symptoms. COVID-19 directly attacks cell linings in a patient’s airways and lungs.
Dexamethasone reduces the inflammation, thereby protecting the cells. Dexamethasone has also been used in Spain and the US to treat patients. The results from Spain and the US match the findings in the UK.
Currently, dexamethasone is only being administered to patients with severe COVID-19 under close clinical supervision. In response to the report from the University of Oxford, The Director-General of WHO urged countries to increase the production and distribution of dexamethasone.
Until a vaccine is tested and mass-produced coronavirus will remain a threat. Governments and individuals must prepare for the second and subsequent waves of COVID-19 infection. With the easing of lockdown measures and businesses reopening we must take additional precautions.
New cases of infection in Seoul were traced to nightclubs. In Germany, the fresh cases were tracked down to a slaughterhouse. Risks increase when people congregate and precautions are ignored. Governments must rethink preventive measures.
Many countries have chosen not to ease their lockdowns until a vaccine is found. As is usual in case of public measures, the effectiveness and success eventually come down to the actions of individuals. We must be mindful of our safety at all times.
One aspect of preparation is securing our supply chains. For millions of families worldwide, remittances are lifelines. Switch now to a reliable channel to send money online. Ensure that your family back home can cope with the economic situation throughout this difficult time.
About The Author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.
5 Must-Haves To Get Small Business Funding
Securing financing for your small business when it most needs it can be ‘make or break’. Small businesses are especially vulnerable to the volatility of poor trading conditions like a recession.
Even a minor dip in sales revenue can send a start-up or small business to the wall, and this is why lenders need to know their funds are in good hands. While the process to get a loan is stringent the positive is when you get the approval you know it’s due to have a robust business model.
Thankfully, there are steps you can take to improve your chances of success with a lender. Here are some essential tasks that must work well for you before applying for business finance.
Well-Grounded Business Plan
Having a sound business plan is key to securing investment for your business. You need to make sure that you have a complete, realistic business plan that articulates every facet of your company. The executive summary must present what you do, who for and why it’s a great offering, so lenders are encouraged to delve deeper into the detail of the plan.
Improve Your Credit Score
If you’ve ever applied for a credit card, a home loan or personal finance you’re already aware of the importance of a good credit score. The same conditions apply for companies they too must have a good business credit score – if not your options for finance from tier-one lenders, i.e. banks is limited.
Learn how your credit score is calculated and stay up-to-date with it so that you know if anything needs doing – like paying off business credit cards and other loans – before applying for new funding. If you’ve just started your business and it has no credit history, your credit score may be taken into account if you apply for a bank loan, so keep on top of that too.
Invest Your Own Cash
Putting some of your cash on the line is one way to increase your chance of success when applying for a business loan. Typically, lenders favor applicants who have at least a 25% equity stake in the company that they are applying on behalf of. And, being able to put some of your own money down will mean that you can borrow less and will start your business off in less debt.
Rent Your Premises
Purchasing an office building might seem tempting if you can, but lenders tend to prefer businesses that rent, rather than buy their workplace. This is because they prefer to see you investing your money into assets that are going to generate income for your business, such as equipment and inventory.
Of course, if you own commercial real estate and it earns an income, this investment is viewed favorably by lenders. Personal assets can be used as security for loans. Often small business owners need to use their assets like property as security to get a loan for their company.
Finally, don’t assume that you have better chances of getting a loan with bigger banks. Smaller, local banks may be more inclined to provide funding to small businesses in their community, and you’re more likely to get individual attention.
Similarly, you might have better luck avoiding the banks altogether and applying to a small business funding circle, including private investors like angel investors. This action does not relieve you from providing the fundamentals that show the health and potential of the business.
Every lender needs to earn a profit from their investment, and they will be thorough in their assessment of risk. The higher the risk, the higher the interest rate too.
Offering a slice of the business may also be another way of securing investment from private investors.
There is no need to shy away from seeking funding for your business when all you need to do is what you should have in the first place, a good credit rating, robust business plan and some skin in the game.
Key Considerations When Applying For A Merchant Account
As a merchant, deciding which credit card processing company to partner with can be a Make or Break issue. As such, the decision should be made with the utmost care.
Weighing profitability versus reputability can be a difficult process especially if one hasn’t dealt with finding a credit card processing company previously.
Unfortunately, poor quality companies are abundant, so choosing an appropriate company for your company’s needs will require thorough vetting and knowing exactly what your company’s needs are. There may be various pressures to choose quickly, but it is important to make thoughtful deliberations to avoid pitfalls.
High and Low-Risk Accounts
Hopefully, you already know whether you are designated as a high or low-risk merchant account. This makes a huge difference in the types and willingness of credit card processing companies to work with your company.
These accounts are typically well-established industries with a limited chargeback, low average ticket size, and low monthly processing totals. Because these industries are easy to predict and require limited investment from the company to process your totals, these accounts are very attractive to banks and processing companies. Because of how attractive these accounts are and how plentiful processing companies may be, they can become the target for poor quality companies
These accounts are typically in an industry that is highly regulated, a possible reputational risk, or e-commerce. These accounts often face a difficult time finding quality companies to work with because of their drawbacks. However, there are companies that specialize in high-risk industries and actively seek high-risk clients in specific industries.
Customer (Service) is King
These two account types seem to have opposite obstacles but it boils down to the same decision-making process. For a business to function efficiently it is important to work with a reliable company that can cater to your needs to ensure reliability in case of an issue and keep your costs low.
An ideal credit card processing company will have easily contacted customer service representatives and is willing to tailor service to your needs, saving you money.
Easily reached customer support is vital in case of an issue, being able to speak with someone immediately to resolve an issue will vastly change the experience if something was to occur.
Although making this one of the utmost priorities may seem unnecessary, in the event of an emergency this may be the only attribute that really matters at that moment.
So How Do They Get You
Unfortunately, some of these companies operate with some impunity which makes it difficult to find companies that are reputable. Some companies will employ shady business practices which make them seem inexpensive compared to the competition then overcharging higher than industry standards. Some of these shady practices might include:
- Undisclosed charges and fees masked by seemingly low rates
- Locking in the long term or non-cancellable contracts which may have outrageous termination fees or monthly/annual fees that change as time passes
- Non-disclosed information or a misleading website that makes an informed decision possible
Options that employ these tactics may try to undercut the competition while not disclosing all the important information before signing with a processing company.
Even if you are quite savvy, research, and read through the contract you may still be taken advantage of; there are many ways for companies to save money. This can be done with non-competitive rates, poor quality equipment or requiring the customer to purchase/lease the equipment, and low functioning or non-existent customer service.
What To Look For
Now that we can spot and avoid poor quality companies, it’s time to start identifying what an ideal company looks like:
- Flexibility: A provider that is willing to tailor service to provide only what is necessary with quality products and services is ideal.
- Communication: It is important to be able to get into contact with someone at a moment’s notice in case of an emergency or an issue.
- Price: The most important aspects of price are early termination fees and competitive rates. Strangely enough, if it’s a quality company, the rate is not the most important issue. They will probably save you money in other ways like providing great equipment or showing extreme visibility regarding fees.
As with anything, not very much of this is cut and dry. All companies fall on the sliding scale of quality, it’s just important to avoid over compromising and protect the integrity of your business. There are good options out there!
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