One of the things small businesses tend to have the most problems with is pricing strategies. There are a multiple reasons because pricing is a process however if you can determine the right price for your product or service it will improve the bottom line of your company. For the importance of pricing, there are a remarkably few books about it and one is from the Self Counsel Press Business Series written by Andrew Gregson written in 2008 published by the International Self-Counsel Press Ltd – Vancouver, BC and Bellingham, Washington.

One of the important elements is do you compete on price or value? If you compete on price understand the margins will be low, but you have to make it up in volume. If you compete on value – you have to help your customers understand and tap into the value they see in your product. There will variables along the line – customers who want to pay the lowest price but are one off customers; there are customers who see value in your product or service and willing to pay more – and you need to find out why they see value and price accordingly.

What makes pricing successful – the company has a decent profit; the owner is paid a reasonable wage; the company and owner can pay their taxes; the company has no difficulty finding the cash to pay bills; the company attracts the best quality of customers who are willing to pay for the value added by the company; the company generates a reasonable return on investment; and bids on jobs are planned to leave no money on the table.

Your prices are too low if you do not generate a profit and liveable wage for the owner; you hate customers because they beat you on price every day; you just spin on the wheel but do not create profit.

What to do – your company needs a unique selling proposition in order to find value in the products and services you offer to your customers. Without it, you will be see as a commodity in the eyes of the customer and no different between you and the competition and because of the internet they are all over the world. Once you have the unique selling proposition you can go through the steps who are your customers; which ones see value and which ones need to better reason; and then you can look at your costs. The process continues every time you open for business.

Linking to dividend paying stocks, when you invest in company which earn profits you can see their value, but you have to ensure customers see the same thing. You expect profitable companies have a very good idea in terms of their pricing strategies and it is something you look at their gross and net margins. Are they consistent, what changes, who are the customers and do they see value they will pay for? The questions never go away.

There are more questions than answers, till the next time – to raising questions.