Pricing For Profits
Pricing For Profits
You are in business to make money. If you do not want to make money then you could explore setting up a nonprofit organization to achieve your goals instead of running a business.In order to make money you have to price your product and service properly. We are not talking about gouging here; we are talking about getting a fair return for your knowledge and efforts.There are two extremes to pricing, charging as much as the market will bear and charging enough that you cover your costs. This is the floor and the ceiling. You can't charge more than the market will bear, which is the ceiling and you should not charge less than you need to live which is the floor.So how do you know how much you need to cover your costs? You start with the fixed costs. Examples are rent, loan payments, salaries and property taxes. The best way to figure out a fixed cost is to think about what bills you would have to pay if you did absolutely no work at all in a month.So let's say that we establish that you have $10
guess,000 of fixed costs each month. Now you have to find out how to earn $10
Ecco Shoes UK,000 each month. If you charge for your time the two extremes would be to charge someone $10
merrell hiking shoes,000 for an hour of your time or to charge 1
mens jeans,000 people each $10 for one hour. Somewhere in between these two extremes lies your strategy. You can work fewer hours if you can charge more for your time. If you cannot charge a large amount for your time then you need to work more hours.Do you have any costs that vary with how much work you do? Strangely enough these types of costs are called variable costs. Examples include cost of sales, gas and supplies. If you sell pencils then the amount you pay for the pencils is called cost of sales. Next step is to figure out your profit on selling a pencil. If your profit is $1 you need to sell 10,000 pencils in order to cover your fixed costs. If you could make $2 a pencil then you would only have to sell 5
Lee Jeans,000 pencils to cover your costs.This type of analysis helps you to see how much you should charge for your products or services so that you earn a profit. Spend a little time working on this and you will have a better understanding of how to improve your profitability.
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