What Control Do Small Business Owners Have Over Cost?
By Mark Walters
— Have you priced your product buying from distributors, local manufacturers, wholesalers, foreign and domestic sources, and home based manufacturers?
— Have you compared all the prices they offer?
— If your supplier goes under, increases their prices, or stops carrying the product you need, can you still offer your product or service at the same price?
— Do you have a backup plan in effect in case your wholesaler’s employees go on strike?
— Do you pay shipping costs? Do you have a backup plan in effect if the shipping company goes on strike, or raises their costs? Does your supplier have a B plan.
Remember: You cannot raise prices without losing clients. So, knowing how solid your supplies price, your labor costs, your utilities, etc., will save you heartache later. This is another place where new businesses make a major mistake. It is summer, you have been in business for two months, and things are going great. You have a 80% markup and that is paying all your bills with a little left over for you. The future looks bright.
November comes and you receive your first heating bill. Not to bad, you expected it. It does take a chunk out of your profit, but hey, it is your first year and things will improve.
January comes, and the temperature dives. Now the heating bill has doubled. You begin to sweat, but hey, spring is only – 1 – 2 – 3 months away. Anyway, the heating bill will go down in 60 days. Then you get your hydro bill, and are shocked at tripled price, until you remember that people are using space heaters.
This doesn’t include the cost of having the parking lot plowed, because even though you put in your business plan that you intended to do it yourself, you forgot that this is a commercial site. All the extra traffic at the office has an ice build up that no man can get through without a miner’s pick or ton of salt. Things are not looking good.
All this can be avoided by doing your homework. The Hydro company will give you the last tenant’s cost for the year.
Call the local snow removal company and ask them for the cost of plowing. You may set aside money for them in the budget, and not use it, but you are in a tight place if the money is not set aside and you need it.
–Assume you will have to switch suppliers for some reason, and PRICE your product according to the industry average, or a little above. That way if the supplier who gave you the great price goes out of business, you will not need to raise your price.
–Get the cost of shipping from several companies, and even if you choose the cheapest to use, do not PRICE your product based on that.
There may also be the possibility of selling your product at different prices to different markets. Let’s say that you make homemade candles. You sell them at the Chamber Networking meeting for $11.00 and in bulk for $7.00, orders over 50 are $4.75. You sell them off your website for $7.00 + shipping, and 3 or more for $5.00. You sell them at the local Flea Market every Saturday in the summer for $6.00, 3 or more for $4.50. And you sell them to stores wholesale for $4.50.
All these prices must be considered when marketing. The web hosting costs $25.00 a month, and web advertising only costs $250.00 a month. There is more competition at the business level, so you need to market more aggressively. The flea market allows you to get rid of seconds, and possibly connect with business people and shop keepers. The cost of a table at the flea/farmer’s market is $75.00 a week.
Each of these candles cost the same amount to produce, but the cost of putting the candle into the consumer’s hand is drastically different, so the price can be different.
Having more than one avenue to sell your product makes sense. Even someone who runs a daycare can have different prices. A lower price if children come between 8 and are gone by 5. A fee attached if the child arrives between 6 – 8, or stays longer at night. A lower price if the child comes at bedtime and is gone in the morning before other children arrive. You do not need to quote the price list to all clients, just give them the prices they need.
If there are no people in your area who offer overnight watch, then you can raise your price. You may even offer to watch the children to 11 p.m on Saturday morning for a nice little profit. The client may not be able to take you up on this every week, but they may take advantage of the chance to sleep in once in a while.
This is an example of how stepping out of the box will improve sales.
About the Author: Mark Walters is a third generation entrepreneur and author. He offers free training and investing videos designed to speed you towards financial independence at
CashFlowInstitute.com
Source:
isnare.com
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