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Pricing Policy Explained

(Image credit: Anil Mohabir | Flickr)

If you’re thinking of starting a business, you first need to come up with a realistic idea you can turn into a successful product or service. Whether you're deciding to sell a product you've manufactured/purchased or providing a service, a policy on pricing is essential.

Pricing must always be transparent, showing the make up in detail. Generally buyers from large companies will expect that clarity and declaration. However, certain forces dictate the price you set. They are;

Market rate

The competition will always, by default, advise you what you can charge. They have set the price within the market and while there may be small differentials by geographical area, or with product enhancements, generally services and products have a worth and a price can be set.

Bucking the trend and setting different prices will make you very competitive or the reverse uncompetitive. Both can have detrimental effect on your bottom line. Piling it high and selling it cheap can give as poor a return as selling it expensively but to less customers. Consider the consequence of your actions.

Expensive or cheap

If you find the goods you are buying too cheap, then there must be something wrong them, they could be faulty or you will be short changed on the service. Equally your customers will think the same of your own offering.

If the goods are expensive you are raising your own expectations on receiving a ‘Rolls Royce’ service, which will be passed on to your own customers if you proceed along the same lines. Think through the pricing structure that you are offering.

Drive a bargain

Always make sure you receive a competitive quote with your buying in of goods or services. If you do, then you can pass on the most competitive price to your customers and also make a healthy margin yourself.

Never let this phase you as your supplier, as long as you pay promptly, will always wish to supply you.

Every deal is mutual so do not put them out of business.

Cost plus

It can be considered a useful exercise to declare to your customer the cost of your labour and materials, such that your customer is very aware of your efficiencies in buying and controlling your team and accepts the margin that you are levying on your goods. That way there can be fewer arguments and discrepancies with the final charges.

Overall, whichever policy you adopt, you need to be paid. Part payment can go a long way to reducing your exposure and any lingering doubts about everyone’s intentions.

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