How to Price Your Products
Whether you’re already in business or just getting started, setting prices for your products is key. The first rule is small businesses should never try to compete on price—it’s an impossible task. Here’s how to price your products correctly.
1— Calculate your costs. First, determine how much it costs you to make or buy your product. This is called the cost of goods sold (COGS). List all the direct costs related to your product, such as materials or supplies, equipment used and labor. COGS also include costs directly related to selling the goods, such as commissions or salaries for your sales team or the purchase and maintenance of company vehicles they use to make sales calls.
2— Assess your expenses. Add up your general and administrative (G&A) expenses. These are the costs of doing business that are not directly related to making, obtaining, or selling a product. Frequently, you will need to separate your overhead expenses related to COGS from those related to G&A. For instance, if your building includes a warehouse where you store inventory, the rent on that portion of the space would be considered COGS, but the rent on the rest of the offices would fall under G&A expenses.
3— Calculate your gross and net profit. Subtract your per-unit COGS from your products per-unit selling price and you’ll get your gross profit. Dividing gross profit by gross sales will give you your gross profit margin. You pay G&A expenses out of your gross profit, and the money left over is your net profit. Your prices must be high enough to produce enough gross profit to pay your expenses and generate a net profit.
These calculations alone aren’t enough to determine your products prices. You also need to consider other factors including:
- What do your competitors charge? The average price your competitors charge is referred to as the market price. However, some of your competitors will charge much less than the market price, while others will charge more. Examine each competitor to assess what factors enable them to charge higher or lower prices than the norm.
Do they offer higher quality, better service or added value? Are they sourcing overseas? Can you do the same?
- Where do you sell? Depending on the sales channels you use to get your product to market, you may need to adjust your prices. For example, if you manufacture a product, or you sell wholesale to retailers, your prices need to be low enough so retailers can mark up the price and make a profit.
- What are your customers willing to pay? Formulas will only take you so far. If your customers aren’t willing to pay what you’re charging, you’ll need to make some adjustments. Whatever you do, donǯt lower your prices so far that you aren’t making a profit.
How to Be More Productive in Less Time
The one thing that small business owners have in common is that their to-do list keeps getting longer as the day gets shorter. This is because most people confuse being busy with being productive.
Being busy is just doing stuff at the office; being productive is specifically working on things that will move the company ahead. To run and grow a profitable business, each owner needs to figure out how to be productive, not just settle for being busy.
Here are actions small business owners can take to be 100% more productive:
1— Choose two tasks. Use five minutes at the end of the day to make a prioritized list of two things that must get accomplished the next day. Do these first before opening up email,
checking social media or doing anything else on your long to-do list. Choose these two items by answering the question. What two tasks, if I completed them today, would make my day
2— Turn off notifications. Stop being reactive. Make sure you control the attention your electronic devices want and that they do not control you with nonstop notifications. Turn all these off including your phone for set periods during the day. If you work in an office, put up a sign to prevent interruptions at certain times.
3— Stop multitasking. It is a myth that multitasking helps you to get more done. It actually allows you to partially complete more tasks poorly. The brain can really only focus on a single task well. Instead of completing two things with average proficiency, do one thing ǲ
fantasticallyǳ well. In this way, having a split focus makes you less productive. I have a sign on my computer that simple says ǲFOCUSǳ which has helped me a lot.
4— Track your time. The only way to truly know how you are spending your time is to track it. Use time tracking software on a smartphone or desktop such as Toggle to become aware of your work habits, so you can actively change them. When you see what you are actually doing, youǯll be amazed how much of it isn’t productive and how many times you switch tasks hourly.
5— Hold 15 minute meetings. Most subjects can be handled in less than 15 minutes. Put all smartphones on the table so no one can use them. Standing during meetings will always shorten them.
6— Get your inbox to zero. Most inboxes are a mess. Do a massive inbox cleaning weekly. Delete messages and organize them into separate folders to get to the goal of having zero unread messages in your inbox. Unsubscribe to unnecessary newsletters you never read. After this massive clean is done, commit to handling every email only once. After reading it, reply, delete, file or set for follow up to get it out of your inbox.
7— Create templates. Most communication is repetitive. Create templates for different types of customers and prospects to prevent from rewriting the same emails over and over
again. Use a password manager instead of trying to remember all the different ones that are set.
8— Take a break or get some rest. Take a break about every 90 minutes. Continually monitor yourself and your productivity level. Getting up from your desk to grab a snack or water can be just what you need cut that hour-long task in half. Experts show the key to being more productive is to get a good night sleep. Try a sleep machine app that plays sounds, making it easier to fall asleep (especially when in a noisy hotel room).
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