I've seen too many small businesses that suffer from low price esteem. In other words, they feel that they have to win the sale based on price alone, that their customers will go elsewhere if they were to charge a higher price. Now, if you are marketing to the masses and your strategy is low-price, then that's true (and you're Walmart). Otherwise, you are digging yourself into a gross margin hole by undercutting yourself.
Gross Margin. Take your profit on a sale, divide it by the total sale price. That's your gross margin. Start thinking in margins and stop thinking in 'mark-up'. Your company will live or die by these margins.
There are two things to consider when pricing your products:
- Your price is set by your customers based on their perception of the value.
- As a good friend of mine points out, "People enjoy buying things they want; they hate paying for things they need."
So, how can you affect your price and still sell your goods? Three ways:
- Do it faster: produce or deliver your product faster than your competition
- Do it better: go that extra mile for your customers.
- Do it for a small niche: if you are in small supply, demand will raise your value.
The bottom line is the bottom line: profits. The higher your top line, the more makes all the way to the bottom. If your business suffers from low-price esteem, seek supply and demand counseling immediately!
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