Profit Boosting Tips – Pricing Strategies

The price/rate you charge for your products or services can have a major impact on your turnover and profitability. Setting your prices too high can reduce sales growth, while undercharging can kill your profits.

Some say pricing is more of an art form than a science, however our top pricing tips should provide logical food for thought;

1)      Understand your market. Unless you have a complete monopoly of a unique product/service, your product’s value will depend on the competition. Identify who your competitors are; what they offer and the key features of the product/service and benefits. The objective should be to price at a level offering the best value to your customers.

2)      Regularly check your prices. Keep up to date with the market and what your competitors are doing. Has customer perception of your product/service changed that warrants an increase.

3)      Your Price point Offering. Break down what you can offer into separate categories. You may be able to target different market sectors with products or services that are applicable to that sector. Some customers want a Premium product or Service which can contribute higher margin.

4)      Pricing Strategy. Be clear on your pricing strategy and how it fits into your overall business positioning. For example are you bargain basement, market leader, niche player or a premium offering? This decision will affect how you manage other areas of the business too, for a low pricing strategy you will need to focus on achieving volume and minimising overhead as margins will be slimmer. We would also comment that even if you offer a premium product or service you should always aim to minimise cost.

5)      Aim High. Under- pricing what you do can be a lot more damaging than overpricing and reducing prices is easier than increasing them. A low price can be off putting and may impact brand strength if customers associate price with quality. Low prices can also attract unprofitable problem customers and those who are price sensitive and disloyal when prices increase.

6)      Understand Your Numbers. Pricing obviously has a huge impact on turnover and profit, therefore you must be comfortable with the effect that price changes can have on your financials. We recommend using basic modelling to see the effect that price changes can have on your business (including increases, discounts, promotion). Nothing flash is needed, a simple spreadsheet can highlight potential big gains and risks. We would also recommend that you get comfortable with your margins and profitability. If you can, benchmark against the market. If your prices are comparable but profit margin lower than the norm, this could indicate an issue with your purchasing and overhead cost. 

7)      Transparent Pricing. Customers hate unwelcome surprises therefore make sure that when you are quoting prices you spell out exactly what is included and that you are comfortable defending the price you quote.

8)      Increasing your Prices. Nothing can have as big a positive impact on your profitability like a price increase and making it stick. We recommend giving customers plenty of warning if they need to budget for an increase. We also recommend that you explain why the increase is needed. Customers don’t like unexplained increases and you can use the increase as an opportunity to reemphasise the benefits you offer. Alternatively you could try to hide the increase by gradually introducing higher priced products, making lower price products/services obsolete or lowering the specification or service level.

Baillie Accountants are dedicated to helping client businesses grow and achieve their objectives, to find out how we can help you please contact us.

Profit Boosting Tips – Effective Purchasing

Profit Boosting tips – Effective Purchasing

We’re very confident that our service represents brilliant value for money, however can you say the same about all of your other suppliers?

Effective purchasing or buying, whatever you call it, may seem like a basic business process, however sometimes the obvious can be overlooked. Effective purchasing can have a massive positive impact on your profits for a relatively small amount of work, in some instances one call in to a supplier can achieve huge gains. Please see below our top tips for effective purchasing;

1)      Ask you current suppliers for a lower price! Don’t be shy, research the market and if you think you are overpaying, ask for a better price.

2)      Don’t assume that because you have been loyal to a supplier for a long time they are giving you their best price. Insurance is a good example of this, recurring premiums rarely go down.

3)      Review your prices and supplier base regularly and benchmark against the market, complete a full review of your supplier portfolio at least once a year.

4)      For high value items and one off purchases, get at least three comparative quotes. There can be a surprising range of prices available.

5)      Use your purchasing power, reduce the size of your supplier base and push extra volume/activity though those remaining suppliers. Inform the supplier you are going to put more their way if the price is right.

6)      Directly contradicting the point above!, add more suppliers into your supplier base and use their competing prices as bargaining tools to drive down cost. The utopian position is a balance somewhere between point 5 and 6.

7)      When ordering look out for suppliers adding unwanted charges, like delivery, insurance, handling fees. These items tend to be low value add-ons but can mount up and add zero value.

8)      In addition to your trade suppliers, the following areas often provide opportunity for cost savings;

i)                    Insurance for; motor vehicles, public liability, premises/assets e.t.c

ii)                   Utilities, water, gas, electric e.t.c

iii)                 Phones and broadband, particularly call charges and mobile phones

iv)                 Banking and finance charges

v)                  Advertising, both online and print media

All of the above points have essentially concentrated on price, in particular trying to achieve a lower price. However we would also comment that lowest price isn’t always best. Other factors can be equally important such as reliability, quality, competence, expertise e.t.c. Achieving an optimal mix of price and service creates value and value is key for profit generation.

To find out how we can help to add value to your business please contact us.

Profit Boosting Tips – Invoicing

Improving your invoicing process and maintaining good discipline here is great way to achieve marginal gains and in some instances big value.

We feel sure that you are all over this, but as a brief reminder, here are our top tips for improving your invoicing process and profits

1)      Raise and issue your invoice at the earliest possible opportunity. The sooner you send out your invoice the sooner it will get paid, particularly if you offer credit terms and have a few slow-payers. Some customers operate cut off dates, you don’t want to miss it, so get that invoice out. Also if you wait a month before invoicing you could forget to invoice altogether.

2)      Send your invoices out by e-mail. This saves on postage and stationary costs; you can request “delivery” and “read” receipts from your customer so you know they have received it. It also avoid the “it must have got lost in the post” old chestnut.

3)      Avoid stock piling a big batch of invoices to process on a weekly or monthly basis, if you don’t like the invoicing process or find it a bit dull a big batch can make the exercise even more loathsome. It’s much better to invoice in real time and spread the burden out, that way you keep on top of it and it’s less of a chore.

4)      Make sure your invoice is complete, if a customer requires a specific order number, or reference number make sure it’s included. Incomplete invoices afford some customers a great opportunity to delay your payment, make sure you don’t provide that opening.

5)      Pre-invoice practice; make sure you issue explicit terms and conditions before you start the job/order/service. So contracts, sales orders, chargeable rates etc. clear terms avoid confusion later on and reduce disputes. Again unclear terms provide customers an opportunity to query an invoice and delay payment.

6)      Additional charges, if you need to bill for extras that a customer is not expecting, pre-empt the invoice and agree additional items in advance. Customers hate getting invoices out of the blue.

7)      Use IT functionality: where ever possible try to automate your invoicing process, perhaps by using a despatch process to trigger the invoice or by setting up recurring profiles for repeat billing. Effective use of IT can also avoid duplication and save time.

If you already apply all of these invoicing disciplines, well done, keep up the good work!

Baillie accountants are dedicated to helping client businesses grow and achieve their objectives, to find out how we can help you please contact us.