Nothing can cause confusion and doubt in a business like pricing your products and services. While you don’t want to charge less than you are worth, you also don’t want to price yourself out of the market, so how do you know if your price is right? Whether you are starting out or starting over, here are five factors to consider when pricing your products and services. 1. CostsFirst and foremost you need to be financially informed. Before you set your pricing, work out the costs involved with running your business. These include your fixed costs (the expenses that will come in every month regardless of sales) and your direct costs (the expenses you incur by producing and delivering your products and services). 2. CustomersKnow what your customers want from your products and services. Are they driven by the cheapest price or by the value they receive? What part does price play in their purchase decision? Also look at what you are selling, are your current customers buying high-end or low-end products and services? This information will help you determine if your price is right, what level of service or inclusions you should be offering and lastly if you are targeting the right market. It may be that you need to change your market to make your business more profitable. 3. PositioningOnce you understand your customer, you need to look at your positioning. Where do you want to be in the marketplace? Do you want to be the most expensive, luxurious, high-end brand in your industry, the cheapest, beat it by 10% brand or somewhere in the middle? Once you have decided, you will start to get an idea of your ideal pricing. 4. CompetitorsThis is one of the key times you can give yourself permission to do a little competitor snooping. What are they charging for different products and services? What inclusions and level of service are they offering for those prices? What customers are they attracting with their pricing? And how are they positioned in the marketplace? The answers to these questions will give you an industry benchmark for your pricing.
5. ProfitOne of the most important questions business owners neglect to ask themselves is, “How much profit do I want to make?” They tend to look at what others charge and then pull a figure out of the air to be competitive without giving consideration to how much profit the want and need. While you may be in business for the passion and to add value to the lives of others, you also need to add value to your own. So give careful consideration to what your time is worth. How do you determine your pricing? This article was originally published on February 24, 2015. NOW READ: “No bullshit”: Atlassian’s Dom Price shares four key ingredients for scaling a startup NOW READ: “Execution is everything”: Here’s the number one reason Australian SMEs are going broke
The first factor that a business should consider when it is deciding if it should sell a product is the: market demand. Know more about it here. Furthermore, when conducting an environmental scan which is an economic factor that a business should consider? ENTREPRENEURSHIP UNIT 2
Also, what factors should an entrepreneur consider? The most critical and most important key success factors that can make an entrepreneur become a successful entrepreneur are:
Similarly, what are the decisions you will consider in pursuing your business? Over the life of your business, you'll be faced with many decisions. Grow Your Business, Not Your Inbox
What is the primary goal of entrepreneurs? In entrepreneurship, the primary goal is not to make a profit but rather to create value, to change how people do business, perceive things, understand things, or to even change how they live. Post written by Brett Goldberg Brett Goldberg is the Co-CEO and Co-Founder of TickPick. After starting our business, we envisioned competing with secondary ticket marketplaces such as StubHub and Ticketmaster. It’s become increasingly difficult to imagine where we’ll be five years from now. From having next to nothing in 2011 (our first year on the market) to reaching nearly $50 million in ticket sales in the last 12 months, our company has lived up to many of our original expectations. But realistically, we only represent a small percentage of the ticket resale business. Though we continue to grow and make the difference we wanted to see in this industry, as both an entrepreneur and businessman, the question of when to sell is always looming. Last year, a healthy offer made its way to the table: one which promised a seven-digit payout and 10% ownership in the new joint company. Sure, the prospect of selling was appealing, especially after five years of hard work and a pretty dismal salary. Even though we technically wouldn’t be selling out entirely, we still felt the valuation was low. And in order for the acquisition to be successful, in addition to bearing additional paydays for us, the new joint company needed to be valued much higher, around $100M. Understanding A Fair Valuation We learned a lot from this first opportunity to sell. First, there will likely be a discrepancy between how much you think your company is worth versus what others are willing to pay, especially in the case of small businesses like ours. To prepare for this, many companies take the “comparable model” approach. Look at other transactions that have taken place within your industry to see which terms are practical for your business. With this knowledge, you can make the argument your company should be similarly valued. Though these terms are often private and difficult to obtain, it’s important to do so. At the end of the day, if you value your company at $100M but no one is willing to pay for it, then it’s up to you to become more realistic. When it comes to selling, your company is only worth what someone else is willing to buy it for. A general rule of thumb: If the discrepancy is within 15-25%, you should be able to make a deal. If it’s off by 50% or more, you’re going to have big problems. Identifying Mission And Vision Alignment When it comes to selling, we want to find a partner who not only had deep pockets, but who is also on board with our mission and won’t steer too far away from this path. This can be incredibly challenging, since it’s difficult to find buyers in the first place. But when the time is right, we’ll spend a considerable amount of time reaching out to funds, companies and individuals we think we’d partner well with. If selling appears to be the right move, we’ll be working extremely hard to find a partner with the best potential. Though money is certainly a dominant factor, it’s not our only driving force as a company. So we’ve continued to roll the dice, a decision based primarily on gut feeling and knowing what is best for the company — or at least what feels best. Having a great business partner makes this much easier, as we’re in constant conversation regarding when to sell. Going With Your Gut and Sticking to Your Strategy We knew that if we could continue to double our sales, we could hold off, keep scaling the business, and in the end be much better off. And we did just that. Still, after partly achieving what we set out to do, a sale seems inevitable. Part of being an entrepreneur is taking on greater financial risks in order to operate and organize the business you set out to create. If we were to sell to a private equity company, one that would likely increase commissions to double profitability, our brand value would be damaged, and in a few years I’d likely find myself battling the same problems I had with the ticket industry five years ago. For the time being, we’ll continue “rolling the dice” for as long as the company can afford to, or until we meet the perfect potential buyer. As of now, we can afford five more years of being our own growing entity without compromising our mission. If (and when) the time comes for us to sell, I hope that my driving motivations will be to maintain a company whose intentions are good and to keep the business on the path forward in this difficult industry. |