Pricing And Profit Part 2 | Bonus Episode | Helping You Insure Your Business Is Sustainable

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SHOW NOTES

KEY IDEAS:

Today will our second installment talking about pricing and “is profit evil?” I did that for a reason. This is a question that has come up several times. It came up for me in my business. It has come up with guests that I have interviewed on the show. And, it is has come up from people who are working in my industry who have since gone out of business.

The fact that they went out of business is a hint as to how important this issue is. By being generous or being nice, rather than pricing their products or services correctly, they are now out of business and not sharing their gifts with the rest of the world. This is not a sustainable way of doing business.

We need to be concerned with sustainability, business sustainability. If we use entrepreneurship to support our farming or rural lifestyle and the business fails, then we lose the lifestyle. So, it is important that we price our goods or services in a way that will sustain our business. Otherwise, all of the positive impact we could have had with our agricultural enterprise will no longer exist.

Here is where we left off in Part 1.

There are also possible hidden costs.

Loan principle repayments
Utilities
Loan Interest
Sale prices
Employee discounts
Desired Profit – which should be counted as a fixed cost

Who is your target market?

You must identify who the ideal customer for your product or service is. Then you must go get that customer. If you are priced incorrectly, you can miss this target market. Perhaps your want high end customers who have stables full of $25,000 horses. Working for these individuals will allow you to work less, spend more time on your own farm and make as much money as working for 5 times as many customers with $2,000 horses.

In order to get into this group you are going to be forced to raise your prices, year after year, until you accomplish this. According to the book “Million Dollar Consulting” by Alan Weiss you should be “dropping” the bottom 15% of your customers every year. This makes room for a new 15% who are closer to your ideal customer. If raising your price causes you to lose 15% of your customers but allows you to cater more to your ideal customer, mission accomplished.

What are you trying to do with your price?

Are you trying to increase sales? If so, be careful lowering your price to do this. You might find yourself working twice as much for the same amount of money.

Are you trying to increase profit? This can be done by increasing price or decreasing price. But the model and lifestyle are much different. In one you work a lot more. In the other, you might even work less. **Remember, this is about more time to manage and grow your farm.

Are you chasing your competitors price? If you are trying be stable in the market place that is fine. Just make sure you find out your competitor’s prices ethically.

Are you trying to improve the perception of your product? A higher price can make the bulk of consumers believe that there is better quality. Price and perception of quality and skill level go together, no matter how irrelevant that really is.

Are you trying to improve your public image? If you want to donate products or services to charity that is fantastic. Make sure that you price high enough that you can do that without taking a loss.

Are you saving up for a slow season or economic downturn? Both happen. It is wise to charge enough that you can have “retained earnings” that will get you through these hard times.

Discounts

In your business would you like to provide discounts? Maybe you would like to provide a bulk discount for those great customers with really big orders or big jobs. Make sure you are priced appropriately so that you can absorb the reduced revenue from these discounts.

Perhaps you would like to provide a senior discount. Seniors might fit into your demographic perfectly. However, they are generally more informed consumers, often on a fixed income and more price sensitive. So, a senior discount makes sense to win their business. Make sure that your regular price is appropriate so that you can absorb this discount when given to this customer demographic. Even though you are giving them a discount, you still want to make a profit on the transaction.

Conclusion

Pricing is one of the most challenging things we do in business. This is especially true for a new business owner who has never done this before. How do you know what to charge the first time you offer your product or service? Will you lose customers if your initial price is too low and you have to raise them?

These and many other questions will factor into you decision making when it comes to pricing. Just remember that a lower price is not always better. And, that this is not a perfect science. Adjust your price as needed and explain the reasons why to your customers.

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