Pricing and the Gross Profit Margin

Pricing is important because it is the primary influencer of the gross profit margin. The gross profit margin is the amount that is left over once the costs of what is sold are paid. Businesses go broke because of declining gross profit margin – in other words, your sales price is too low relative to […]

Me-Too Product Pricing

How me-too pricing works. The market leading brand (often the first brand to move into a product category) sets the prices for the product category. The number two brand almost inevitably enters at a price point just below the market leader to grab market share. Whatever is left over after the two big guns argue […]

How to Raise Your Prices

If it’s time to make more profit, it’s time to raise your prices. In fact, as good business practice, you should review your pricing every few months. Small but regular price increases are a better story to tell than massive leaps in charges. If you don’t want to increase the price, you may face one […]

How to Test For Price Sensitivity

In the real world, businesses want to know by how much they can increase their prices without losing too many sales. We know this conceptually as price sensitivity. Many businesses use pricing research to help them to understand price sensitivity. The research questions centre around understanding what trade offs customers make in their purchasing decision, […]

How to Create a Price Driven Business

You may create a price-driven business because you have found a market opportunity or you have the business model to support it. It is especially opportunistic if competitors are not price-driven and your market is maturing (in other words, customers are better educated about the products and they are either aware that there are choices […]

Creating and Maintaining Term Commitments

A contract is a legally binding document that should be drafted and/or reviewed by a properly qualified lawyer. While this topic discusses contracts, it does not constitute legal advice. Businesses wanting to implement contracts between buyers and sellers should get legal representation. What is it? A formally binding contract is a legal agreement that commits […]

Calculating Breakeven Analysis

Once you know what your variable and fixed costs are, you are able to calculate the point at which you breakeven. In other words, the volume of goods you need to sell to cover all your costs. This model is also useful if you are considering expansion. (You would increase your fixed cost component.) The […]

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Intro to Pricing

About Pricing. Pricing matters. It matters a lot. It is the primary influencer of the gross profit margin – the litmus test to the health of your business. Before you can even begin to dabble in pricing, you need to understand gross profit margin and your fixed and variable costs. And this is just the […]

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Pricing Models Explained

Traditionally, pricing in the bricks-and-mortar world has been set under one of four main pricing models. These are: Cost-based pricing models. Customer-pricing models. Value-based pricing models. Competition-based pricing models.   Cost-Based Pricing To price using a cost based pricing model you need to understand your product costs. Using this method, you will need to know […]

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Signs of Overpricing

(SEE ALSO: WHEN TO DROP PRICES.) Overpricing is possible, but is uncommon. Usually businesses are in such panic about their pricing that they underprice, not overprice. Businesses are worried that their prices are too high and will scare away their customers. Despite this worry, though, many a business has reported that increasing the price has […]