One of the critical factors in any business is developing an effective pricing policy that will maximize your profits. Maximum profit doesn't necessarily result from selling goods at the highest possible profit margins.
There is a close relationship between the price, volume sold, cost of merchandise, and operational expenses that ultimately determines profitability. For instance, price increases may result in fewer sales and yet still yield a higher overall profit for the business. In other cases this approach may result in decreased profits. On the other hand, reductions in prices that result in sales volume that is substantially increased may produce an improvement in profits.
When it comes to making a pricing determination, the first factor you need to know is the cost of doing business as well as the product's cost per unit. This may require some detailed research and analysis to come up with some accurate estimates. You will not be able to determine these numbers with 100% accuracy, but it should be as close as possible.
It does, however, need to be fairly accurate since failing to calculate all actual costs properly to ensure that the profit margin is enough to cover those costs is a frequent cause of business failure. Many business owners actually end up selling their products at a loss without even knowing it.
Before setting the price on any of your products you must estimate the cost of labor, raw materials, variable overhead costs as well as research and development. As costs fluctuate over time you may need to re-evaluate these numbers to make sure they continue to be accurate.
No matter what approach you decide will achieve the maximum levels of profit, the approach for determining product costs will involve four expense categories. These categories are: Labor Costs, Materials Costs, Overhead Per Unit and the Desired Profit Margin.
Combining these factors allows you to calculate an item's minimum sales price. A detailed explanation of this method can be found at the resource listed below.
Proper product pricing is only one factor in developing a profitable plan. Another major factor to be determined once you know your costs, break-even point, and profitability goals, is the selling strategy. Three main sales approaches are used (sometimes concurrently) by businesses to develop a final pricing policy that will allow them to compete successfully in today's market.
Many considerations go into determining product selling prices. Some businesses seek to compete on price others do not by finding a un- or under-occupied market niche. This can be a more certain path to business success. The important point to remember is that all factors affecting price must be recognized and analyzed for their costs as well as their benefits.
For a more complete explanation of how to develop your pricing policy including examples and the three main sales approaches used in most businesses to develop the most profitable pricing strategy visit: http://www.topbusinessresources.com
No comments:
Post a Comment