If you’re an Ohio business owner, or if you’re thinking about becoming an Ohio business owner someday, the reality is that you deal with decisions every day. And many of these decisions deal with pricing matters. Pricing isn’t always easy to manage, but there are specific steps you can take to ensure that you have a solid pricing structure.
- Analyze the costs and profitability of your products on an ongoing basis to ensure you’re focusing efforts on the right products. One way to obtain a baseline for your pricing is to evaluate and monitor your competitors’ prices. If you can identify pricing trends by product group by season and market area, you’ll have insight on where your pricing should be.
- Determine the gross margin dollars and percent generated by product type and evaluate specific product winners and losers.
- Consider increasing the selling price of a product if the market will accept the increased price, or consider discontinuing the product if it’s a low margin item. Even the smallest increase in gross sales prices can have a huge impact on your profits. Increasing direct margin by carefully planned price increases should be a constant element in sales planning because the leverage on profits is so large.
After evaluating product pricing within your organization, look at overhead expenses. Do you have overhead expenses that are not in line with the level of your sales volume? If so, make an effort to increase the sales volume to cover the overhead costs. You may find that reducing your overhead may be an alternative solution, if it is possible to do so without limiting your company’s future growth potential.
Consider having your sales staff earn their wages based on commission, with a possible minimum base salary. This can enable your company to pay compensation in direct relation to revenue and performance. Commissions paid to salespeople provide a valuable incentive for selling products. It can also provide the sales force with an understanding of the value of your company’s products.
You should evaluate and revise the commission structure as necessary to emphasize sales of higher margin products, acquisition of new accounts and other sales goals. You can create a more effective sales team by offering training for new sales employees and monitoring new sales employees’ progress.
Closely observing your company’s overall pricing structure and creating a more effective sales team can potentially increase your company’s profitability. And in turn, you’ll be a happy business owner. It’s essential to properly price products to cover all direct and indirect costs — your company’s growth and success depend on it. Email Rea & Associates for help or to learn more.