Talking Cents

Tips on choosing the pricing strategy for your business

It is clear the impact correct pricing can make. Pricing can make or break a business. However, it can often be difficult to select the right pricing. Too high, and not many people will buy your products or services. Too low, and you are missing out on potential profit margins. Here at M.A.S Partners, the leading small business accountants in Zetland, we understand the importance of a pricing strategy, and the process one must make to ensure that their pricing strategy is effective. As such, we have provided some tips that will hopefully help you.

Establish all costs

The first step to choosing your product prices is to find out exactly how much each product costs. That will not only include material and manufacturing costs, but also transportation costs as well. Costs of goods sold tells you what your business spends to deliver a product or service to your customer. When identifying your cost of goods sold, you should look for expenses that occur only when a service or good is provided, and expenses that go up and down as sales go up and down. A simple formula for identifying your cost of goods sold is the sum of supplies, transport, manufacture, storage and distribution. In doing so, you will be able to find your break-even price.

Types of pricing strategies

Once you have established your cost of goods sold, it is time to choose how much profit you want to make per product. Here, you will need to find a pricing strategy that suits your business.

Cost-plus pricing strategy

When using a cost-plus pricing strategy, you would add a standard markup to everything you sell. Often there are industry-standard markups on the products you sell- which can serve to be a good place to start. It can be helpful to hire a small business accountant or bookkeeper with experience in the industry to help you.

Market-based pricing strategy

Often there is a range of prices that your competitors will charge for their product or service. Here you can either go higher if you offer more convenience or a premium experience or match the average if you want to keep price sensitive shoppers. Unless you have a steady supply, chain and forecast a lot of sales, it is often not a good idea to sell lower than the average price.

Price bundling

When price bundling, you will sell a few products or services together with slight discounts. Your profit margins will come down but will sell more as a result. If you are price bundling, be sure to do the appropriate market research.

Consider hiring a small business accountant

Without expert experience and knowledge, it can often be difficult choosing the correct pricing strategy. As such, it is a good idea to hire a small business accountant with knowledge in the field. Our small business accountants at M.A.S Partners have worked with hundreds of small businesses, from restaurants to traditional retailers. For more information on our small business accounting, click here.