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Pricing: 6 Common Mistakes to Avoid To Build Profit

What should I charge? A common question for many small business owners. Charge too little and profit suffers, charge too much and sales decline. When it comes to pricing your products or services, there is no right or wrong answer. But, your long-term growth and profit will ultimately reflect the decisions you make. So here are common pricing mistakes to avoid AND some things you should consider to maximize your bottom line.

Common Pricing Mistakes

Lack of controls on discounting. Discounts and special offers may have their place, but if used as a standard closing tool, it costs you a lot of profit. Have a strategy and purpose when it comes to offering discounts.

Cost-plus pricing. Setting your prices based on a standard markup and cost ignores  value and competition. Some products or services end up over-priced; but more often in small businesses, many are under-priced – leaving profit on the table. Know your costs and have a profit margin goal – but raise or lower your selling price based on competition and value.

Inadequate systems for tracking competition. You need a method to periodically check what competitors are doing in terms of price, value, and products or services. Google alerts and other on-line services can make this easier to monitor.

Poor execution on price changes or increases. Changing prices is part of doing business. But how you communicate and implement the changes can make a big difference in retention and new business.

Price inconsistencies. While you may operate locally or regionally, your customers have access to information nationally and globally. If the trade-off between price and value is not strong for your products or services, your price may appear unfair or too high. Be aware of all their options and consider this in pricing decisions.

Incentives based on revenue not profit measures. Sales incentives or commissions based on sales versus profit can have a big impact on margins. It tends to encourage discounting and easy sales (lower margin products) – instead of high-margin premium products.

What Should I Charge?

There are a lot of factors that go into your pricing decisions, such as cost, competition, market conditions, quality and other intangibles like service and convenience. So instead of asking what should I charge, start with a much more relevant question: How much do customers value the products, services or other intangibles I offer?

Here are some additional questions you might want to consider as you develop your pricing:

  • Do I want to maximize sales or maximize profit – overall and at the product or service level?
  • Do I want to use cost-plus pricing or value-based pricing?
  • Should I have a single price or multiple pricing based on targets or other factors?
  • Should prices vary in different geographic areas based on costs, competition, and/or market conditions?
  • Do I plan to use a variety of distribution channels? If so, how will the pricing vary?
  • Should I use quantity discounts? If so, how will they be used.
  • What image do I want my price to convey? Quality, convenience or low cost?
  • How flexible can we be in pricing? Can we customize or semi-customize? Can we adjust pricing quickly based on market conditions?
  • Do price points already exist for the products or services? If so, what are they (range) and how do they differ from high price to low price?
  • How visible should my prices be? From highly visible, to help promote a low price or reinforce the quality image, to hidden, to generate interest unhindered by price considerations.
  • Are there bundling, packaging or joint product considerations? Bundles typically provide more value or savings than buying the items individually.
Pricing and Marketing

Pricing is one of the elements of marketing and is related to your products positioning, such as quality, convenience or low cost. But it also affects the other elements such as product features, channel or distribution decisions, and promotion. You can’t fund these things if your pricing strategies produce little or no gross profit margins. You can, however,

Limit the low margin products you sell – and promote the heck out of premium or higher margin products or services

Look for ways to reduce ‘product or delivery’ costs so more profit falls to the bottom line

Find alternate, cost-effective ways to get your products or services to customers – joint ventures or the web are just a few.

Identify cost-effective ways to add value that customers will pay for – so you can raise prices more than the cost of the value added.

Differentiate yourself so you stop competing on price

Pricing is one of the key profit levers in your business. Don’t just throw a price out there and hope for the best. Give it a little thought, do a little research. When done properly, here’s three things YOUR pricing should do:

  1. Achieve your financial goals and profit objectives. The key here is to have objectives and know your true costs.
  2. Fit the realities of the market place. Will customers buy at that price based on value and competition?
  3. Support your positioning and other elements of your marketing, such as distribution channels, promotions, and product uniqueness.

Consider all three when you establish your prices and you’ll stay on the path to sustained profit and long-term growth.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

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How to Diversify Products to Maximize Sales and Profit

Most businesses have more than one product or service that they offer. They are not all created equal. So if you want to maximize both sales and profit, diversify products just like you diversify your customers.

What Are Diverse Products?

Some products or services are highly profitable, others produce low margins. Some are single transactions, others are recurring. Some have broad appeal, others have narrow appeal. Some are labor intensive, others are not. Some are clearly unique – nobody else offers this product or service – while others are vanilla in nature.

Many of us don’t think about it this way. But a little variety can really go a long way to help maximize profit and reduce risk. Financial planners use diversification when putting together an investment portfolio. You can do the same with your products and services portfolio.

Categories For Product Diversification

Whether you sell merchandise, finished goods, or services, your offerings will typically fall into one or more of the following categories:

Customary: Products or services that customers readily associate with you or your business based on your industry. These may or may not represent a substantial portion of your sales, but customers may view them as necessary to ‘be in the business’. For example, annual tax preparation services is a standard offering for accountants. We expect them to be able to do our personal or business tax returns.

Core: These represent a substantial amount of sales or profit to your business. They may or may not be unique but often are the products and services that are ‘top of mind’ when people think of your business. You sell a lot of these so declines in sales of these products would heavily impact your overall business.

Complimentary: Products or services that go well with your core or customary products.  They are natural fits. They are not typically ‘standalone’ products for YOUR business, but they offer customer convenience and incremental profit opportunities for you.

These types of products or services may be delivered by your company directly or seamlessly through a third party. For example, payroll or bookkeeping services are complimentary offerings for accountants; window cleaning is a complimentary service for residential or commercial cleaning service companies; watch repairs and jewelry cleaning are complimentary services for jewelers.

Easy Entry:  Services or products that provide an easy, affordable way for customers to try you out.  This is done with expectation for additional or premium products in the future. For example, a financial planner may use a financial plan to attract portfolio customers; a car dealer may use oil changes to attract car repair customers and future new car buyers; a consultant may use webinars to attract private clients; an attorney may offer employee handbook reviews to gain access to employment law clients. Often, ‘easy entry’ products or services are lower margin and profit, but they work IF you upgrade or sell them additional products.

Bundled:  Products that combine various elements, features or services for convenience, savings or added value into a single offering. Most are familiar with cable companies who package internet and phone with cable TV. But anyone can do this if the bundle is valued by your target customers. Here are some less traditional ones: Accountants can bundle tax services with quarterly planning, salons can bundle hair and manicure services, a hardware store can bundle paint, brushes, and drop clothes.

Premium: These are products or services that deliver more perceived value and command higher prices. So they generate greater profit. These are often upgrades to standard or core offerings or are products that are in demand but are unique or have little competition. Think good-better-best!

Leveraged: Products or services that generate revenue and profit without substantial resources – time, people and money — beyond initial development. Information products and alliance programs are examples of these offerings. These provide passive income for your business.  Most businesses have the ability to create them.

Recurring:  These repeat in a predetermined frequency, such as weekly or monthly, and can be packaged accordingly. Here are a few examples: maintenance or service contracts, quarterly planning services, education or activity (dance, karate) classes, cleaning services, and lawn care.

Think Diverse To Maximize Profit

So where do your products and services fall on the diversity scale? Are all your eggs in one or two baskets? What opportunities exist in some of the other categories? Time to start tapping into those possibilities. Think different, think diverse.

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Do Your Products & Services Need a Facelift?

Products and services have a shelf life because customer needs are always changing. Those that sold well in the past may not be as effective today. Without the right products or services for your ideal customers, your marketing efforts may generate interest, but not sales.

5 Ways To Improve Offers and Increase Revenue
  • Create a new product or service for your business. What do your customers need today that you could easily offer or integrate into your services – big or small? The key to success here is to ensure it’s a natural fit for your other products or services. They should compliment your current offers and be logical to customers based on your company’s reputation, experience, etc.
  • Offer a simpler or smaller version of an existing product or service. Can you take something away or simplify it to make it more affordable to your target customers? This may be a way to create an easy entry to your company. From there, you can upsell or cross-sell products in the future.
  • Offer a bigger or more expensive version of an existing product or service. What can you add – value or technology – to make the product or service more appealing to your ideal target customers? Consider what your competition does or does not provide. One of the keys is to do a little research by talking to your ideal target customers. What do they want, what are they willing to pay?
  • Package existing products or services. While bundled services may cost more as a package, they typically deliver more value in the long-term and ultimately save customers money. The key with packaging services is to create them for a niche or small segment of your market. Do not try to create packages that serve everyone or you will ultimately serve no one.
  • Update your services. Since the needs of customers change over time, your products and services need to keep up. Do the value-added features you include still matter to customers? If not, remove them and save the money. Are there services that you need to add that are now expected? If so, find a cost-effective way to incorporate them. Feedback from customers makes this easier to do. So evaluate your services and modify them as needed.
Communicate Changes and Improvements

When you give your products and services that much-needed upgrade, remember to communicate it! While many small businesses promote a new product, they often overlook communicating improvements or changes to existing products or services. Announcements in newsletters or email campaigns, press releases, a simple business letter, direct mail piece, updates on social media or even a ‘New’ icon on your product website can often do the trick.

So as you plan your marketing, don’t overlook the product development side of your small business and remember to communicate the changes you make. Your bottom line will thank you.

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How to Make Package-Based Pricing Work for Your Service Business

In an attempt to simplify pricing for both the business and customer, many service companies look to package-based pricing. It’s convenient for customers who have a clearer expectation of cost and saves the business time by eliminating the need for individual quotes on certain projects. Sounds like a win-win right? It can be if you avoid some common pitfalls.

When Packaging Services, Avoid Common Pitfalls

Think Efficiency. Most businesses have an opinion of what their time is worth – a combination of cost and value. But determining the amount of time dedicated to doing the work is often more of a challenge. When it comes to packaging, experience and efficiency matter – for you and those in your company who do the work. It allows you to deliver value at a price that is competitive while optimizing margins due to efficiency.

If you have a system or proven method to ensure consistent repeatability and quality results, then packaging may be a great option. If not, your package-based pricing may erode margins or hurt sales opportunities.

Define What Is Included. Set clear expectations on what the package includes or the scope of work. What do you plan to do, how often? What is the deliverable? What services, if applicable, will be extra. Be specific to avoid confusion that can lead to unhappy customers or “unpaid’ work.

Stay True to Your Target. Packages are not ideal for every customer. Some will need or want more than your package includes. Build your package with a specific target in mind and be willing to say NO when it is not a good fit. If a prospect needs a custom solution or wants more, create a unique package (aka proposal) for them with the appropriate extras or be willing to let them go. Otherwise, you erode margins or end up with unhappy customers!

Good-Better-Best. Some customers like choices. Because packages are pre-set and pre-priced, they are less flexible by design. You can address this with multiple package options. Think good, better and best and be clear on differences between packages. It provides customer choice and up-sell opportunities for your business.

Balance Quotes and Packages. If you offer a variety of services to a wide range of customers, use a combination of packages and proposals. Develop packages for some common, simple projects or certain types of customers. Use your proposal or quote process for more complex projects or customers who require custom solutions. This provides flexibility to meet customer needs and maximize profit.

Service Packages Make Selling Easier

When done right, service packages can save you time without sacrificing sales and profit. For many, they can open up additional sales opportunities. With training and a good system, even non-sales team members can help generate sales!

I saw this first hand when we implemented this strategy with a client who owned a residential and commercial cleaning service. By establishing packages for homeowners, his assistant was able to close sales and leave him and others to focus on higher-profit commercial work that required on-site visits and proposals. It was a win-win!

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