Commodity Pricing And Financial Planning For Small Business.

An important element of financial planning for small businesses is pricing power. Pricing power is the ability of a business to raise its price over time. For example, if you think about doubling the price of your product, you must keep in mind that you may lose 50% of your customers, especially those who are price conscious. However, the remaining 50% will still get you the same revenue after you double the price. While this is just an example, what we mean here is that change in price has a huge impact on revenue, hence, it should be a gradual process that is well-advised and well-planned. Unless your product or service is exclusive, with little or no competition, pricing cannot be an arbitrary act.

Once a business has increased the price of a product, it takes some time to understand how the market is responding before you can conclude success or failure of the new price. Following are a few pricing methods used by small businesses. There are also specific pricing strategies for promotional pricing discount pricing and new product pricing.

Premium Pricing – this is set according to the uniqueness of the product. This method is used when the product is substantially competitive. More unique the features of a product or service, higher is the price.

Cost Plus Mark-Up Pricing – this is when the seller decides how much the product should cost, based on the time and effort put into production and getting it to the market. It covers the overall expenditure and also includes a profit margin that he wants to derive. This is predictive method and allows the seller to calculate exactly how much he will ear, once a unit has been sold.

Perceived Value Pricing –  this method is used by businesses to make customers believe that their product is different from and better than similar products available in the market. Once a customer is convinced, the product is sold at its perceived value, which is usually higher than the market price. This method is successful with less informed customers or for unique or new products.

Competitive Pricing

This pricing method is commonly used in small business where you get ten sample prices from your competitors, calculate the average of those prices and use it as the price of your product. Some businesses also set their prices lower than the market average, and use this as a marketing strategy to attract customers, though it doesn’t ensure profitability.

Cost Plus Perceived Value Pricing – this is also known as market oriented price. It is the combination of Cost Plus Mark-Up and Perceived Value Pricing method.

Psychological Pricing – this pricing method is based on perception. What people believe to be a good price, they pay, based on their understanding of a product. Whatever value a customer associates with the product is paid upfront, with no pre-existing price tag.

Economic Pricing – this method is cost-effective for the manufacturer. In this, the cost of a product is kept lowest. It is not used for luxury products or major brands, but for economic and generic brands. Because these products are going to be sold at a low price, quality, performance and durability do not require much attention or expenditure and production costs are kept low.

Cashflow decides how the company is performing on a daily basis. A study of cashflow helps understand how many transactions are happening and if the income is more or less than expenditure; ideally, it should always be more. Following practises can be used to maintain a healthy cashflow in small businesses:

I have discussed in my previous post how you can look at some of your competitors’ websites to get an idea about building your own website. The next step is to build your own website. This is your home base and all of your internet endeavours will run to and from it. As a starting point, you can contact an online media consultant to help set-up the website per your requirement. Selecting a domain and figuring out a quality hosting plan to get off the ground, the design and layout of your site, all of these can be taken care of by HyperEffects.