Business Accountant

Home » Management » The price is right!

The price is right!

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 7,595 other followers

Archives

Categories

Pricing

Pricing is an area many businesses struggle with. It is part science, part art and part psychology. Confident pricing is as much about how we feel about our business and our product/service, as it is about rules and processes.

Many businesses will stick to a cost plus method of pricing. They will add up all the components of a job and add a percentage for profit – job done (?). However, this approach takes no account of the market in which they are trading or the value of their product/service to the customer.

If you don’t know enough about your market you run the risk of overpricing by using the cost plus pricing method. If other suppliers are providing the same product/service as you and charging less than you, you need to know! If you constantly loose work it may be that you are pitching to the wrong type of customer for you.

Alternatively if you don’t understand the value of your product/service to your customer, you could be regularly underpricing. Take, for example, an instance which happened to me a couple of months ago. We had just had new carpeting through out the upstairs of our house. You know how it is, for a micro second everything looks great until… the cat gets trapped in one of the bedrooms and rips up the carpet in front of the door!

I phoned our lovely carpet guy who came along and patched in some of the offcut left over from the original fitting. He did such a good job that we cannot actually see where the join is. Obviously for me this job had a good deal of value because our carpet is pristine again. But he priced on a cost plus basis and so only charged me £15! He probably left over £80 on the table because the job was worth at least £100 to me.

Now cost plus as a starting point is not bad, because at least you ensure you get the minimum price you need to cover your costs – as long as you have a very good idea what those costs are. But relying on it alone will mean that you undercharge clients for whom the value you provide is more than the costs of providing it (plus profit).

For effective pricing you need to do your homework. You need to understand the market you are in; who your ideal customers are and what they value; and you need to have a very clear idea of what you need to achieve to make a profit.

Fiona 🙂


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow Business Accountant on WordPress.com

Enter your email address to follow this blog and receive notifications of new posts by email.

%d bloggers like this: