Connect with us

Finance

How Do I Price My Products/Services?

pricing products

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

BusinessArticles is the popular online Hub for quality business articles. We publish unique articles and share them with our social followers.

Continue Reading
Click to comment

Comments?

Finance

Making Money With Short Term Rentals

apartment

Investors love investing in real estate as it usually outperforms other investment types like shares and managed funds. There are many ways to make a profit for your business with real estate too including ‘flipping’. This term refers to purchasing a revenue-generating asset and then shortly thereafter selling it again for a profit. In the US, the two asset classes mostly used for flipping are initial public offerings and real estate.

The longer-term real estate investing strategy that’s prevalent is buying homes to rent out on long term tenancies. It’s not just businesses that invest in rental properties, as a retirement strategy workers also look to have one or two investment properties in their portfolio for the weekly income and the long term capital gain on resale.

What’s also caught the attention of businesses and workers alike is the option to make money from short term rentals. Generating more income with short term rentals and by listing these properties on Airbnb is disrupting the accommodation sector and anyone with a home can do it. AirBnB is a disrupter and it has changed the way we travel. Staying in a spare room for a night or two, rather than a hotel is now accepted as the norm among all types of holidaymakers.

If you want to know how you can earn money with short term rentals, here is a quick guide.

What Is Airbnb?

Airbnb is an online marketplace for lodging around the world. It is popular among travelers who want to save money on accommodation. Because hotel rates are getting expensive, solo and group travelers are looking for more affordable options. Property rental listings on Airbnb can be a whole apartment, one room, or villas. Users can input the location and dates of arrival and departure to look for available properties.

The company started in 2008, and since then, it has reached worldwide popularity. Not only travelers are using this app, but also business-minded individuals take advantage of Airbnb’s technology to generate more money.

In the United States, there was a 45 percent increase in year-to-year bookings. Airbnb attracts millions of users worldwide, which comprises of frequent travelers and individuals who travel for work. About 700,000 companies are now using Airbnb for work-related purposes.

Earning Money with Short Term Rentals

You do not need to buy a property to list it on Airbnb. You can go for short term rentals to gain a more significant profit from daily or weekly rentals. Some people are already doing this strategy for years now, and you can also do the same if you find a property in a prime location.

Because this venture requires capital in the form of deposits, you need to be ready. Some property owners require bigger deposits, especially if the unit or apartment has appliances and furniture. Ensure that you have enough money to cover for deposits to get the business rolling. Once the apartment is ready for occupancy, you need to create an Airbnb account and list the property.

Other considerations you need to know:

  • Property Maintenance
  • Property Rating
  • Security
  • Facilities

Studying the market and how the business works can help you optimize the trade. Create a checklist to go through the essentials every time before a guest checks in. Besides, you can also connect with other people who do this business in different areas.

Technology opened up more profit opportunities for people. In hospitality, even you, who do not have much experience in property rentals, can earn money. Listing your extra room in the apartment can be a good start, but you can always experiment with making more profit. By short term rental, you can get access to excellent properties that can be listed on Airbnb.

Continue exploring the real estate market and make sure to learn new knowledge from experienced individuals. Who knows, you might gain financial freedom by being successful with this Airbnb venture. Check how other hosts present the properties, so you can have an idea of how to operate yours.

Continue Reading

Finance

Home Appraisal Tips for a Successful Refinancing

shaking hands

The appraisal value for your home significantly impacts a refinancing application. New paint, upgraded flooring, renewed fixtures, and proper sanitation also contribute towards a satisfactory appraisal. Refinancing a home requires several necessary measures. However, the appraisal of the estate is perhaps the most significant.

If a real estate appraiser provides an assessment on the equity in your home, it can make – or break – the chance to refinance mortgage. You need the value to suit your refinancing targets, and what better way to achieve that than to improve your home?

What is a Home Appraisal?

An appraisal is a qualified and accredited professional assessment on the value of a property given by a third party. The appraiser will get paid by appraising your home with no incurred risk on whether you can refinance a mortgage or not because of the value they provide.

In a refinancing deal, an appraisal safeguards the lender by guaranteeing that it does not loan the applicant more than the value of the property. If the estate is subsequently foreclosed for any cause, the borrower will want to resell it and get their money back.

Tips to get a high-end appraisal:

The cost that the appraiser assigns your property mainly relies on the latest selling values of similar houses. However, you can definitely make sure that your property is appraised to its maximum value.

Having your house appraised is like meeting a potential partner. Although you do not know what the person likes and how they will judge you, dressing well improves your chances. Your estate must be clean and organized, tidy, and comfortable to examine. Pets should be kept in place, and the scent blocked. You will not want to rush the appraiser before inspecting everything.

Appraisers are especially particular about:

  • External and internal condition
  • Overall room number
  • Features, including layout design and functionality
  • Kitchen and bathroom upgrades, walls, roofing, and home systems (air conditioning, plumbing, and electrical) throughout the past 15 years that have made the house updated, usable and livable for current standards
  • State and condition of the house’s structures
  • External facilities, including garages, stairs, and balconies location

It’s also wise to emphasize characteristics that might not be readily noticeable, which might contribute to the value of the property. If there are any upgrades that are not seen, it would be good to let the appraiser know.

After securing a reasonable appraisal, you have achieved a significant step toward refinancing your loan. You can now proceed to the next steps with your mortgage lender. If you have received a good value, use a resource such as the Consumer Financial Protection Bureau’s Mortgage Calculator to check interest rates on refinanced loans with the same pricing for your house. Coming equipped with these statistics will provide you more negotiating power once you face your lender. It will also help you feel confident in asking for the rate that you deserve.

Knowing how appraisals work will provide you with the strongest shot of getting an appraiser to award the maximum value for your estate. Appraisals may not always arrive with the ideals that applicants aim for, and they are a subjective method with room for human error. You can appeal if you have a low rating, but you will only survive with reliable information to back you up.

Continue Reading

Finance

Commercial Loans: Options and Benefits for Start-ups

money

Running a business requires working capital to hire staff, buy equipment, and cover for utility bills.

For start-up firms, having a huge capital is not always guaranteed, and commercial loans provide funding to get the business rolling. The problem is, not a lot of business owners are confident and educated enough to borrow money from lenders.

In case you are wondering how the commercial loan works, here is a guide to help you understand how the process, options, and why your business needs it.

What are Commercial Loans?

A commercial loan is a type of financial assistance that helps businesses address everyday costs and begin the next stage in their business journey. Most of these loans have fixed rates and monthly payments but require collateral that should be equal or greater than the loan amount.

The most common types of financing options are:

Small Business Administration Loans

SBA loans are similar to traditional loans but with longer terms and lower interest rates. The only downside is, borrowers need to wait for long to get the funding. Loan terms can be a minimum of 5 to a maximum of 15 or 30 years.

Business Line of Credit

This type of commercial loan gives a borrower more flexibility in borrowing money. The lender will provide a pool of funding that you can draw from whenever you need it. You will only pay the interest of the money you take out.

Traditional Term Loans

Traditional term loans are the most basic of all, wherein a business owner borrows a specific amount and payback with interest. Lenders charge rates depending on the creditworthiness of a business.

Benefits of Commercial Loans

Capital Availability

Easy access to funds can help you focus on improving your services and gaining more clients. Loans provide a breathing space for you to focus on your business and not think about money. As you work on expanding your reach, hiring talented people, and boosting marketing, you can expect growth.

Commercial loans provide credits up to $25 million and help you increase working capital and create more jobs. Also, long-term loans are easier to pay back while you are still building your business.

Build Credit

If you are planning to apply for a large-scale loan in the future, starting with short-term loans can help you build a business credit card. Start-ups usually don’t qualify for larger loans because of the risks involved and lack of credit history. Try going low first to build up your report and increase the loan amount eventually.

Go After a Business Opportunity

Got a new idea to grow your business but lacks funding? Consult a financial advisor to know your options and get a low-interest commercial loan. Weigh your options carefully and go directly to a reliable lender for secure loans.

Taking risks is part of running a business. If you believe in what you are selling or providing to customers, then consider commercial loans to take your business to a new level. Contact North Avenue Capital to learn your options for business and industry loan programs.

Continue Reading

Trending