After investing hours researching your new business idea, it is easy for the new entrepreneur to forget that the essence of business is not how eye-catching your business card is or how well-organized your home office appears. It is simply one reality-you must make a profit as quickly as you can and continue to make a profit every month.
The key to developing an effective plan for creating profit is your pricing strategy.
Setting your initial pricing schedule is one of the most demanding and most critical decisions you must make in preparing to successfully launch your new business. Profitable pricing requires realistic cost estimation, accurate competitive analysis, a solid understanding of your marketing objectives and a lot of intuition.
We have not found one magic formula for setting prices. There are slightly different approaches for a manufacturer, a retailer, a service provider and a consultant. But each type of distribution benefits from an exploration of five key factors.
Five Keys to Pricing
There are five factors you should consider before you set your prices: your costs; your competition's pricing; your desired image; your income goal; and what value you think you offer.
First, your costs. There are a variety of costs you must consider in order to set your price. Your costs represent the "floor" below which you should not go with your pricing. The three main costs you must consider are:
Personal living costs. These costs include that part of your family budget you are expected to pay each month plus the new costs of self-employment, including health insurance premiums and income and social security taxes.
Direct business expenses. These include any expense directly related to producing a product or service, such as raw materials or labor costs.
Business overhead expenses. These are sometimes called "indirect expenses" because you are expected to pay them whether you make any sales or not. Examples of overhead costs are rent, telephone, car expenses or equipment purchases.
Your Competition's Prices
Be careful not to put too much emphasis on your competition's pricing when you set your own prices. First, make sure you are offering something very similar to your competitor. Whether you can go higher in price depends on how successful you are in making your product or service look better and different to the customer.
About the Author
Jeff Williams is a 50+ entrepreneur who worked for big business for years, until he decided to take his career in his own hands by establishing his practice as a business coach and trainer. Now Jeff offers you the information he had to learn the hard way -- and he shares it with you in his Ultimate Boomer Business Start-Up Guide.