Is the Price Right?

Chris Roush | February 23rd, 2012

Could you be charging more for your products or services? Every smart business owner is continually analyzing people costs and product and market profitability. 

If adequate information is available in the market for product costing, business owners will be more informed when evaluating the profitability of that market. To help gather this information, a company can undergo a pricing comparison study to determine whether its pricing is in-line with the local competition. 

To do so, the company should: 

  • Monitor competitors’ prices of the same or similar products across different markets.
  • Identify pricing trends by product and/or product group (and by season and market).
  • Evaluate the gross margin dollars and percent generated by a product group and recommend price increases or decreases.
  • Indicate specific product “winners” and “losers.”
  • Plan for these products once they have been identified.
  • Increase the selling price of certain products (if the market will accept a higher price).
  • Maintain prices based upon its formal pricing strategy. 

Selective price increases may increase the direct margin without reducing volume. Very small increases in gross sales prices can have very large and beneficial effects on profits.  Increasing direct margin through carefully planned price increases should be a constant element in sales planning because the leverage on profits is so large. 

It is essential to properly price products to cover all of the direct costs and overhead and to make a profit to keep your business going!

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