A well-defined product price can make the difference between a successful start-up and one that doesn't generate the sales necessary to survive.
Let's imagine a hypothetical case: Ana decided to start a business selling shoes and accessories. To define how much she would charge her future customers, she got advice from some friends, visited the stores of potential competitors and searched for prices in a well known marketplace online marketplace.
The shoe store opened, but within a few months Ana realized that the sales revenue was not enough to cover her rent, supplier payments, and payroll costs; she was forced to close her new business shortly after her one-year anniversary.
Where was the mistake and what should we do to choose a product price that suits our needs as a business?
This case is not uncommon: hundreds of businesses find themselves in similar situations, where poor financial control generates oversights in the relationship between income and expenses generated.
New to finances? Follow these steps to get started with your bookkeeping.
Choosing the right product price is essential to determine the success of your business; consider the following elements to succeed in your first year.
Understand your market and what you want to sell
The main objective of your business is to to become profitable in its first years.
A simple but necessary step is to know the market demand to plan your sales goals and consequent revenues. At this point it is essential to study the different business models used by companies in your industry, and use accurate data generated by market research to ensure a constant product demand.
Guide: How to define the price of a product or service for the first time.
Early contacts with customers will help you get the salesperson's instinct to make good management decisions at the inventory management level, but you can't just go on hunches.
It is essential that from the beginning you keep exact metrics on each sales movement; this way, you will be able to define the performance of each product (i.e., which one generates sales and which one doesn't) and plan your strategies based on the income you already have.
Study costs to leverage product productivity
As we explained in a previous article, not all costs are equal. Managing your finances in an orderly manner will allow you to study whether the income you are generating is sufficient to cover essential costs for the operation of your business, such as:
- Rental of premises;
- Product manufacturing, packaging;
- Product shipping costs;
- Salaries and related costs;
- Marketing and sales;
- Website maintenance;
- Taxes and legal commitments.
What purchase orders do I need to place on an ongoing basis to update my inventory? Which product needs to be given a boost with a marketing strategy? With the productivity study of your products, you can easily plan your next investment.
Don't skimp on spending time every week planning your product sourcing until it becomes routine; having a good relationship and constant communication with your suppliers will help you keep everything in order so that your customers never find empty shelves where your flagship product should be.
Use a tool that helps you predict income
Finally, it is important that you ally yourself with tools that will help you automate manual tasks such as data collection and quick report analysis.
If you have a Point of Sale (POS) or billing system, you'll have access to hundreds of features to generate sales reports, schedule inventory adjustments and manage product availability even across multiple locations.
Try the features offered by the Cloud and start selling now that you have already defined the price of your business product or service.