One of the secrets to achieving success in your business is pricing your products and services properly. In towing service business and any other business, pricing is very important in ensuring you get consistent calls from your customers. Pricing your products properly will determine how much you can sell and create a good foundation for your business to prosper. When you get the pricing strategy down, you will create a lot of problems for your business.
The price you charge your customers will have a direct effect on the success of your business. To determine your pricing, there are a couple of things you need to understand.
- All prices must cover costs and profits.
- The most effective way to lower prices is through lowering costs
- You need to review prices regularly to ensure they reflect on the dynamics of cost, competition as well as market demand.
Here are some strategies you can use to price your products.
Cost Plus Pricing
With this strategy, you ensure your price has a “plus” a figure that covers all overheads and generates a percentage of profit you need. If the overhead figure is not accurate you will risk having profits which are too low, or even loss. Work on the cost of materials, add the cost of labor, add other overheads, and finally add the desired profit so as to reach on the required sale price.
Demand pricing is determined by the optimum combination of volume and profit. Products are normally sold via different sources and at different prices. They may be sold via retailers, discount chains, suppliers, and wholesalers. A wholesaler is able to buy greater quantities as compared to a retailer and this translates to purchasing at lower unit prices. A retailer pays more per product because they are not able to purchase in bulk.
Competitive pricing is normally used when there is an established market price for a particular product or service. If all your competitors are charging $100 to replace a broken windshield, then that is what you should charge as well. Competitive pricing normally applies in markets where products have no major differentiation from one another. To be able to use competitive pricing effectively, you need to know the prices that each competitor has established.
Markup pricing is used by wholesalers, manufactures, and retailers. It is calculated by adding a set amount of the cost of the product and this results in the price charged to the customer. Let’s say the price of a product is $100 and your selling price is $150. In this case, $50 becomes the markup. You can get the right markup by setting a fixed percentage that you will be adding to the cost of the product.
In order to effectively price products, you need to be familiar with the pricing structures and the differences between margin and markup. Every product needs to be priced so that it covers its cost of production, associated logistics costs, other overheads, and the expected profit. Overheads refer to all non-labor expenses that are required to operate your business. they are either fixed or variable. Fixed expenses are those expenses that must be met every month, including salaries, payroll costs, utilities, insurance, licenses, among others.