Small business owners are often stymied by the concept of pricing. The other elements of Marketing; namely, Product, Promotion and Place, typically receive more attention to the detriment of many a business. Since this is such a critical topic for business success, Cybertary has been featuring a different aspect of pricing in previous newsletters. We have covered the factors that contribute to setting your pricing, the different strategies you may choose to employ, and some of the pitfalls to avoid in your pricing strategies.
In this, the final article in the series, we are borrowing from Jeff Foxworthy’s stand up routine;
you know you need help with pricing when…
…you are continuously borrowing just to keep your doors open.
Borrowing is a good alternative when you are launching a new business or when you are trying to expand a growing one. If you are using loans as your prime revenue source, it’s time to rethink your pricing.
…you stay awake nights fearing the horse head in the bed.
Most men I know admit that they learned a great deal of their business acumen from repeated viewings of “The Godfather”. Indeed, the Tom Hanks character in “You’ve Got Mail”, Joe Fox, often quoted pithy lines from “The Godfather” movie scenes when he was advising Meg Ryan’s character on how to keep her small, independent children’s bookstore in business. For my part, I am still not sure how to employ “Go to the mattress” for my business; I guess it is a gender thing. In my singular viewing of “The Godfather”, I do recall the horrific scene of the movie tycoon inexplicably waking up with a severed horse’s head in his bed. He had apparently crossed the path of a shady “connected” character in a business deal gone awry.
If you are a high risk candidate for borrowing, paying an exorbitantly high interest rate for your loans, or worse, on a first name basis with flamboyantly suited “bankers”, aka loan sharks, it’s time to rethink your pricing.
…everyone else on your team gets a paycheck, benefits and a vacation EXCEPT you.
One of the reasons that many of us follow the entrepreneurial path is because we have a passion for the product or service we bring to the market. Don’t let that love of the business put blinders on you. You need to be able to sustain yourself and your chosen way of life. This includes paying yourself a reasonable salary, cover your benefits and, yes, enjoy a rejuvenating break from work. If you are not, it’s time to rethink your pricing.
…you are a purchasing agent’s best friend
If you win a lot of business because you are the lowest bidder, but you are not able to actually turn a profit, you probably are lacking a pragmatic view of your cost structure. Hearken to the advice in the previous articles of accounting for all of your costs. If you are on the low bid treadmill, running in place or slipping backwards with your P&L, it’s time to rethink your pricing.
…you are personally funding the IRS’ shortfall with high interest and penalty payments.
One quick way to bankruptcy court is to consider your tax obligations to be a discretionary funding source for your business. These costs escalate quickly and will continue to snowball if you choose to avoid the requisite taxes, so avoidance and delay is not an option. Paying Uncle Sam avoidable interest and penalties will erode your profit. If you find yourself on the IRS’ Holiday Card list, it’s time to rethink your pricing.
We hope that you enjoyed this article and the entire series. Hopefully, some of the information can help you avoid these situations and price your products or services for profitability.
*Many thanks to JoAnn Forrester, President, S.I. Business Associates, for sharing her wealth of insight and knowledge on pricing as well as the title for this series and the guidance in this article.
