It’s easy to overlook the importance of pricing strategies when running a business. This is an area that can really help or hurt your bottom line. Do you have a gross margin target on your products or services ex., pricing products to achieve a target of 40% gross margin? This is considered “cost plus” pricing and is the simplest strategy. If you don’t have a goal, start thinking about a target that makes sense for your product or industry.
Different products and services may have different targets. An innovative offering should be priced to capture that value, especially if few or no other competitors offer such a product or service.
Look at your gross margins by customer. If you have customers making you a very low gross margin or a negative gross margin (you are losing money every time you sell to this customer), consider a price increase. If other customers are paying a price where you make a healthy margin, why aren’t you charging low margin clients the same? If you do a price increase and your client does not want to pay, then maybe you need to walk away from providing product/service to this business.
Overall, remember that nothing beats a price increase. Price increases drop money directly to your bottom line. Don’t be afraid to pass on increases that your receive from your vendors. Do not eat this out of fear that your customers will walk away.
The amount of revenue in your business does not equal success. What is better…selling $2 million/year at 10% margin vs. $1 million/year at 25% margin?
Pricing strategies matter!