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How Do I Price My Products/Services?

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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.

The basics

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.

The knowledge

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 costs

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.

Conclusion

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!

Additional resources

9 Strategies for Profitably Pricing Your Retail Products
How to price your startup’s product right — the first time
Revenue is Not Your Friend – Pricing For Profit

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Finance

Financing A Business With A Home Equity Loan

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Finding funds for a business is no easy task. Qualifying for a business loan is not guaranteed; therefore many companies leverage their owners’ assets like the family home to raise the funds they require in their enterprise.

There are many ways to use personally guaranteed funds too and one option is what’s called a home equity loan or home equity line of credit, These loans can also be ideal for debt consolidation of say high-interest borrowing like credit cards, personal and short term loans but in this blog post we’re focusing on how these loans work for businesses.

There are many more obstacles or hoops to jump through when seeking an actual business loan and often it’s the financial statements of the business that fail to pass the lending criteria due to the startup phase requiring more investment and not showing a profit.

Entrepreneurs starting out, are therefore renown for sourcing investment from wherever they can get it. The credit card has been the go-to source for funds, but the interest rates are very high, so it’s not a long term borrowing solution for a business.

Before long, the owner is seeking other sources to keep the business afloat or to grow it. They may take out personal loans but before long their requirements exceed what they borrow without additional security so this is where many use their home.

As a business owner, it may make perfect sense to use a home equity line of credit to draw down funds for the business and then repay them when in lump sums and repeat as and when required. So what is a HELOC?

HELOC

This type of loan allows you to have an open line of credit on the equity you have in your property.

HELOC’s has longer repayment periods that can be 10 – 20 years much like a usual mortgage and as the property owner you can borrow up to 85% of the home’s value minus what you may owe it. For example, if your home is valued at $750,000 and you have a mortgage of $250,000 on it already. Your line of credit may be as much as $425,000.

HELOC rates are higher than your standard mortgage rate, so it’s very much ‘caveat emptor’ or buyer beware, get professional expert advice from your accountant, financial advisor and maybe also your lawyer. Remember all loan agreements are legal documents, and they have terms and conditions that the borrower must comply.

There are many other ways to fund your business, including angel investors, offering shareholdings, so while using the equity in your home is an option it may not be the best way forward as the risk is your business cannot pay back what it’s borrowed, and you are personally liable to repay it or lose it.

Remember it is your equity and if your business borrows too much of it and can not repay it, and the lender calls in the loan it could be that you are forced to sell your home. It’s a dreary thought, but it’s better to know the pros and cons when borrowing money for any venture.

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Finance

Young Money: How To Fund A Startup

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Have you got a great idea for a business and now you want to make it happen? You’re not alone. While every business with the idea, commercialising it is a whole new site of skills. Getting a startup business up and running is a challenge for anyone who has not done it before.

Entrepreneurs don’t usually have the ideas, i.e. they’re not the creative talent. They’re the people, the ideas creators turn to, when they want to see how far they can take the idea and turn it into a viable business.

The start up phase of any business involves a lot of working hard, but not exclusively, it also requires investment. Seed money can come from various sources. Without the money, to get started and provide ongoing investment as the business shows promise, your venture may take too long to mature and a competitor takes your place in the eye of the consumer. So where can the investment come from?

What’s Available?

There are a lot of different funding options available for small businesses, and they all offer their benefits. You can find some examples of the most popular methods below, along with some additional information to help you choose which route might be best for you.

Personal Finance/Loans

You will need to invest in yourself, i.e. put some of your own money in. If you have not got savings, consider other options, like your home loan. This is a hugely popular option for start ups that fail to get funding from other sources. Caveat Emptor: Always seek professional advice from your accountant, lawyer etc before taking on debt.

So if you have money saved up or can get a loan from a bank, funding your business will be a fast process. As aforementioned, there will be a personal risk here, but you won’t have to prove to anyone that your business will work, making it great for those who can’t get further than a concept without some capital.

Business Loans

Some banks and governments will offer loans to new businesses. In most cases, you will have to have existing cash flow to make this work, limiting the successful startups will have with it.

Angel Investors

If you can convince an investor with the money to back your idea, you won’t have to look at other types of funding for business, as you will have both money and support. This isn’t always easy to find, and you will have to prove that your idea is worth their time, making it hard for those with nothing but a concept.

Personal Risk vs. Sacrificing Freedom

The choice you make when you’re choosing how your company will be funded largely rests on what is more important to you.

If you are willing to take on personal risk, using your own money can be a great way to go, as it will give you all the freedom you need to build the business you’ve been dreaming about.

For those who would rather keep their money safe, making a couple of compromises along the way can be a small price to pay for an investor or venture capital. This is a very personal decision to make.

Why Isn’t The Bank An Option?

A lot of startups find disappointment when they approach a bank for a loan to get themselves off the ground.

Unfortunately, history has shown that being too willing to offer new businesses money can result in heavy losses, and banks have learned for their mistakes. Before you can convince a company like this to support your venture, you will need to prove that it can make enough to pay it back, and most startups just don’t have the income.

Choosing the funding option which you use for your startup has always been a challenge. It’s becoming more common to find businesses which cost nearly nothing to get started, opening the doors to another idea for you to consider.

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Finance

Best Cryptocurrency to Buy – Which Is Best?

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A lot of people might say that cryptocurrency’s big moment has ended. After the sharp rise and precipitous fall of bitcoin, many strait laced investors soured on the idea of crypto investment. Crypto’s 15 minutes of fame were over, the thinking was, and it was time to move your money back to safer, and more standard commodities.

This, however, is just not true. Cryptocurrency continues to be a sound investment, if you know the best cryptocurrency to invest in. We’ve compiled a list of four great picks below.

Ethereum

Ethereum is sometimes thought of as bitcoin’s chief rival, which perhaps makes it the second-most famous cryptocurrency. Ethereum is also commonly thought of as an expansion of blockchain technology beyond bitcoin. It is traded as a cryptocurrency, but it also has value as a decentralized computing platform.

Ethereum includes a programming language that runs on blockchain. So, it is used by developers to create apps, including health and security infrastructure, music licensing services, and even anonymous browsers. Ownership of an Ethereum token is recorded on the shared blockchain ledger, as it would be on any cryptocurrency.

However, Ethereum expands this practice to record the ownership of copyrights, music, documents, financial instruments: anything imaginable. By purchasing Ethereum, you are investing in this network, rather than the security as such. For this reason, Ethereum is an excellent investment and one that the savvy investor should be scoping out.

Bitcoin

For fame and notoriety among the cryptocurrencies, none can match bitcoin, the original cryptocurrency in many people’s minds. Now more than a decade old (the mysterious Satoshi Nakamoto published the bitcoin white paper in 2008), bitcoin has had its share of ups and downs.

For the savvy investor, though, bitcoin can still be a sound investment. After the massive — and massively famous — December 2017 peak, the price of bitcoin has held steady between $3,000 and $6,000 per coin. As bitcoin matures as a security, it is looking more and more like a place to park your money, rather than the white-hot investment it was two years ago. This is not a downside, because investors need (and will take) both options.

Dogecoin

It started as a joke — a play on the classic “doge” meme. But since its inception in 2013, Dogecoin has grown to a market cap of over $312 million dollars in April 2019, with values soaring as high as $2 billion in January of 2018. Dogecoin’s value fluctuations will be familiar to anybody who has traded in penny stocks. It maintains a steady mean value, punctuated by regular spikes in its price.

The trick, as it were, is to buy it just after a spike in its price, and to sell it during the next spike. While Dogecoins are not a strong long-term investment, they can be a decent swing investment if you have the time and energy to monitor them. The origins may be silly, but the money is very real.

Litecoin

Litecoin is a cryptocurrency specifically developed for zero-cost payments. Litecoin was developed to have a faster transaction confirmation than Bitcoin. This emphasis on fast, secure transactions has made Litecoin one of the most popular coins with businesses interested in security.

For this reason, the value of a single Litecoin has risen from $30 to $78 in the past six months, well below the mean value. This is the perfect opportunity for an investor to swoop in. As security becomes increasingly important to businesses across the board, Litecoin begins to look like a better opportunity than ever.

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