Are You Leaving Money on the Table?
If your pricing isn't optimized for effectiveness, you may be leaving money on the table -- money that may not only be affecting your cash flow, but also your profits.
How you price your goods or services has a direct impact on your cash flow, and if your pricing isn't optimized for effectiveness, you may be leaving money on the table -- money that may not only be affecting your cash flow, but also your profits. Pricing is an art, and there are many variables to consider as you decide how many each item should be.
Elizabeth Wasserman at Inc says you should always test new prices, offers, and combinations of benefits to help you sell more. She suggests trying a new offer each month.
"Another key component to pricing your product right is to continuously monitor your prices and your underlying profitability on a monthly basis," Wasserman says. "It's not enough to look at overall profitability of your company every month. You have to focus on the profitability (or lack of profitability) of every product you sell. You have to make absolutely sure you know the degree to which every product you sell is contributing to your goal of making money each month."
Just as understanding your own metrics is critical, so is taking note of what competitors are charging. These days, when the customer is carrying around all of your competition in the device in their pocket, getting your prices right has never been more important to closing a sale.
Business software firm Zebra recently released its 2019 Shopper Vision Study, which looks at numerous aspects of retail, including shopper behavior as it relates to pricing.
"Not unexpectedly, shoppers indicate that the in-store experience often fails to keep them from shopping around for lower prices," the report says. "Tellingly, they are much less likely to try to negotiate on pricing with associates than try another store or browse online."
Images via Zebra.com
You must be sure that the price you settle upon is one that customers will be willing to pay, and that perception of your brand is at a place that justifies that price. Customer service will help accomplish that. It's also important that your marketing is sufficient enough to make customers aware of what you're offering and how much it is, particularly if the price clearly beats that of your competitors. Calculate how much volume you realistically expect to be able to move.
Consider how the season will impact cash flow. It might make sense to adjust pricing to reflect the season, whether it's slower or busier for your particular business.
Inventory software provider Unleashed recommends exploring dynamic pricing or yield management pricing strategies. With dynamic pricing, a business sets flexible prices for products or services based on current demand. This way, it can charge as needed with the season based on a variety of factors, such as supply and demand, competitor pricing, etc. With yield management, you would charge more when demand is high and less when it's low, particularly if the product/service is limited. For example, a flower shop may raise prices around certain times of the year, such as Valentine's Day or Mother's Day, then lower them just afterward.
Ultimately, pricing is something you may have to experiment with. You can't expect to be able to set prices and never change them. You should always be keeping up with the factors that influence price and adjust them accordingly. Just don't forget to alert consumers when prices come down!
If you’re looking for ways to maximize your cash flow, increase automation and manage risk, Bank of Oklahoma is the banking partner you need who can deliver competitive products that grow with you.