Pricing Strategies to Maximize Profit
To reach sustainable growth, you need to think and act strategically. Ensure you’re continually charging the appropriate amount for maximum profit, by evaluating and re-evaluating your pricing. Because that’s what we’re in this for, right?
Consider What You Charge:
Take time each year to analyze your bottom line through the lens of what you charge. Although there are industry specific ratios to arrive at that information, these simple calculations are helpful when trying to assess your basic numbers.
Cost of Raw Materials + Labor Costs + Overhead Expenses
Number of products
Cost of Raw Materials + Labor Costs + Overhead Expenses + Desired Profit
Number of products
Cost of Raw Materials + Labor Costs + Overhead Expenses + (Profit x 2)
Keystone (Doubling Cost for Retail):
Retail Price = [(Cost of Item) / (100- Markup Percentage)] x 100
Break Even Price x 2 – Ideal Profit Margin Within Competitor’s Price = Wholesale Price
- Cost of Raw Materials + Labor Costs + Overhead Expenses + Profit = Wholesale x 2 = Retail
- Consultant Pricing: Salary x 3
- Service: Hourly Overhead Expense + Hourly Wage + Profit = Total Price Per Hour
Evaluate the Pricing Model:
Break down all product/service costs by recalculating all labor costs, raw cost of materials, overhead rates and desired profit percentages. Then use the examples above to look at the current results.
Gauge Competitor Pricing:
Look at your competitors’ prices (maybe do some secret shopping on line) and compare to your similar services/products. Determine if they are higher or lower priced than what you just calculated for your business, and determine why.
Tweak your prices and make the necessary adjustments based on the data. Don’t forget to ensure that you’re making as much profit as the analysis will allow.
- How to Price Your Products
- How Intelligent Pricing Can Help Save Your Company in a Pandemic
- Upgrade Your Pricing Strategy to Match Consumer Behavior
Complete the Collin SBDC Client Needs Assessment for more assistance.