Getting Started With PricingOutside Contributor
How a company prices its products and services is one of the most critical determining factors in determining a company’s ability to make a profit.
Pricing strategy and the elements that go into determining prices can be very complex. The task is even more difficult for the small business owner who wears so many hats during the business day. Some of the most successful landscape companies will tell you that how you calculate your pricing in the bidding and estimating process is the most critical factor in determining their success or failure.
Lack of understanding on how to properly price not only can destroy the firm which does not price properly, but it hurts all of the other established firms within the industry. The primarily goal of a business is to make a profit, but too often small businesses end up being created so the owner is earning just enough at to create a job for himself.
You should do the homework necessary to know what the target gross margin ranges should be for the product and service you are offering. There are a lot of trade associations within the landscape industry, and these associations can provide you some input into these gross margin ranges. By participating in an association you can network with other industry professionals who may be willing to develop a mentoring relationship with your company.
Estimating your products and services requires you to consider more than just the direct costs involved in providing that project and service. Your business includes many other overhead costs associated with operating your business. Your pricing strategies need to be constantly reviewed and evaluated for effectiveness and the impact your pricing has on your bottom line. A frequent review of your financials can be another important barometer as to the effectiveness of your pricing strategies.
Getting started with pricing begins with further education!
- How to price your small business products and services – From the U.S. Small Business Association
- Eight reasons why companies don’t capture more value – From the Harvard Business Review Blog
- Understanding Gross Margin – From the U.S. Small Business Administration
- What a balance sheet reveals about a small business – From the U.S. Small Business Administration
- A beginners guide to financial statements – From the U.S. Securities and Exchange Commission