Profitable pricing is a virtuous circle if you get it right and a vicious circle if you get it wrong.
So, how do you get it right and price profitably?
Astonishingly, too many businesses simply don’t know how profitable their products and services are because their management accounting processes are not up to the task.
It’s not just the costs and revenues that need to be measured.
If yours is a service business then time is literally money and logging time spent on each client, at least in a way that’s “roughly right” and not “precisely wrong”, will provide invaluable information about how profitably you’re performing client work.
So step one is to make sure you have the management information you need to measure profitability accurately.
Step two is to act on it.
There is no doubting that the business climate is tough.
But competitive doesn’t have to mean cheap and you don’t have to abandon profitable pricing. There’s only room for one lowest-cost firm in your market and if that is not you then compete on other aspects of your product or service such as:
Look at your competitors and see what fronts they’re fighting on (or not) and look beyond your own market for ideas about how to position your business so that it stands out from the crowd.
Sometimes when you make a pitch that embraces profitable pricing the client or prospect will say you are too expensive.
It’s important to negotiate but one of the options here is to walk away – you just need to be polite and have the confidence to do it. There is no point in “buying” sales with low prices that you can’t make money from.
You might be nicely surprised at the reaction when you walk away – the buyer might really quite like you and be prepared to pay what you want simply because you’re a great fit for their business!
Also, think about the lifetime value of a client. Establishing a good working relationship now at lower prices than you’d ideally like might be the foot in the door for a long-term relationship in which you can increase prices or lower the costs of doing the work in the future and make the profits you want.
If you adopt this approach then make sure you’re clear that prices will go up so there are no surprises.
Offer an introductory discount, fix the price for six months only, think how landlords offer rent-free periods, there are lots of examples of how to do this so you do not end up with permanently low prices and a contract you can’t make money out of.
Profitable pricing falls straight to your bottom line.
This translates into more money in the bank, provided you deliver what you promise and are on top of credit control, and the value of your business increases.
But it’s more than just a financial thing. Everyone feels better in a business that’s performing well. Some of the profit can be reinvested in training, in new products, new markets and rewarding everyone involved.
And, of course, pretty much the opposite happens when you don’t get it right.
Good luck with your next pitch!
Michael
We don’t believe in forms, we believe in talking to people, finding out your needs and tailor-making a solution just for you.
Give us a ring on 020 7125 0270 or email us at info@bluedotconsulting.co.uk
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