If you’ve just answered blankly, “what pricing strategy?” then read on!
You see, some retailers that we come across look at their pricing strategies biannually, some annually and some NEVER. But the reality is, your pricing strategy is a liquid document that needs to be looked at on receiving EVERY SINGLE INVOICE – yes, EVERY SINGLE INVOICE.
Why? Well, not only because wholesalers have in their conditions of sale that prices can be changed without prior notice (and you probably don’t notice!), but freight charges change, your business’s fixed and variable costs can change and frankly, your buyers change too!
So, this is why we say, “every single invoice!” – so you keep an eye on changes, and you stay as profitable as possible.
Because let’s face it, we all love being in business, but we are in business to make money at the end of the day.
So, again, when did you last look at your pricing strategy?
When calculating a retail price for your stock, do you take into consideration, for example,
- Freight (inwards and perhaps even outwards if you sell online)
- Fixed costs such as rent or rates
- Packaging prices – bubble wrap and tissue paper has a cost too!
- Variable costs such as wages (staff and your own), electricity, phone
- What your profit goals are for the quarter/year and so forth?
Do you know how much each item ACTUALLY costs you?
When chatting to various clients about pricing strategies, it’s clear that so many of us in retail make pricing decisions based on emotions – based on whether they THINK their customers would pay that amount or not.
Or you look at competitors and see what they have priced the same item at, even though you have NO idea what their pricing strategy is?
Maybe their pricing strategy is based on quantity, not profitability, meaning they are happy to make $2 off 100,000 sales rather than $50 off ten sales of the same product (which may be ok if you’re a multi-national and not a small business owner!).
I know what that looks like; when in retail myself, it’s how we based our prices for longer than I would care to admit.
But your sales need to ensure you are meeting your financial goals and continuously growing your business so you can have the lifestyle you wanted when you started the business and make a bigger difference in your community or the world.
Again, you are in business to make money, so if your products have the wrong or inadequate markup on them, then you probably won’t reach those financial goals you’ve set – and sometimes, if you’re not looking at your pricing strategy, you might wonder why?
So, as we head into 2022, perhaps it’s the perfect time to change your mindset around your prices. Implement a system or policy around your pricing strategy and start selling things for their TRUE COST plus the margin required to be profitable and sustainable to reach your financial goals.
Statistically, four out of five small businesses fail in the first five years; that’s 46 small businesses in Australia closing their doors every day (and this stat was pre-pandemic). And many fail because they just can’t make enough money to keep the doors open and be profitable.
Perhaps they didn’t review their prices, and they continued making emotional pricing decisions or looking at their competitor’s prices, which may have ultimately contributed to their failure in business.
I urge you to take some time this week to,
- Review your profit goals (or set new ones)
- review your prices
- compare old and new supplier invoices
- work out which products make you the most money and which ones just aren’t profitable enough and make strategic decisions based on this information (I know it will be hard, but your business depends on it)
- sit down and work out your fixed and variable costs
- make sure you are adding GST and inward/outward freight to each item, over and above your normal mark up
It seems so simple, but unfortunately, it’s not. It takes time, effort, energy and perhaps a community to help you with the ebbs and flows of business and pricing.
Running a small business isn’t easy, but it can be simple or at least simpler with the right advice and help.
We have a huge community of small rural and regional business owners in Spend With Us – Buy From a Bush Business. This isn’t just a marketplace and a Facebook group but also a community of like-minded rural and regional business owners sharing stories, tips, tricks and us (the co-founders) helping them build their businesses.