Sign & Digital Graphics

May '19

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28 • May 2019 • S I G N & D I G I T A L G R A P H I C S Do I Really Need a Formal Pricing Strategy? YES! Knowing how much to charge is imperative to ensure profitability Vince DiCecco is a business training and development consultant and owner of the Acworth, Georgia-based business, Your Personal Business Trainer, Inc. He has been sculpting his sales, marketing and training techniques since 1979, and he has shared innovative and practical ideas on business management excellence for two Fortune 200 companies, the U.S. Coast Guard, and in seminars at many sign and digital graphics trade shows. Since 2003, YPBT has been serving small- to mid-sized companies in their efforts to strive for sustained growth and market dominance. Contact him via email at vince@ypbt.com or visit his com- pany website, www.ypbt.com. What's your GM? Of the four common approaches listed above, the most frequently used one is applying a desired gross margin. First, knowing what a gross margin is helps. Gross profit margin is the percentage of the selling price after you subtract what it costs to produce or provide particular goods or services. For example, if something sells for $100 and that item costs $45 to make, the gross margin is 55 percent. Sounds simple enough, right? Now remember, that $45 cost includes materials that go into the finished product and/or are consumed during the manufacturing process, production labor, packaging and delivery. Accountants call it "Cost of Goods Sold" ( COGS). Businesses in our industry typically enjoy gross margins of between 35 to 70 percent, whereas three out of every four North American companies operate and survive with 25 to 40 percent gross margins. The "applying a desired gross margin" approach is not with- out its shortcomings. Just because it costs you $45 to produce something doesn't necessarily mean customers will buy it for $100. Here is where you should blend in two other strategies— knowing what the market will bear and what your competitors are charging for similar goods. Just don't get caught in the trap of saying "If my competitor can sell it at that price, so can I." You may find yourself saying one thing and really meaning "If my competitor can sell it at that price and go broke, by golly, so can I." Then it just becomes a matter of who has more money to lose before you both go out of business. Periodically, you should test the market for all it can bear. Have you ever had a pro- spective customer come into your shop, ask for a quote on a job, and then leave undecided, only to come back a few weeks later and ask if you would still honor that quote? Actually, you should thank that customer. She has done some valuable market research on your behalf and it didn't cost you a dime. She's reporting back to you that, for that combination of quantity, quality, service and delivery, you have the best deal around. You see, during the two weeks of her indecision, there is a strong possibility that she solicited quotes from your com- petitors. It is on that particular product and its combination of quality, service, and delivery that you should raise your price immediately after securing her order. W hile trying to get a feel for its fiscal health and well- being, one of the first queries I pose to prospective and current clients of my business development consulting firm is "define for me your pricing strategy." The typical response I get resembles the proverbial deer-in-the-headlights. Oh, they may stutter, stammer and eventually mumble something that sounds like a pricing strategy, but most business owners have not formally developed one—let alone have it written down somewhere. I've often won- dered why that is so. There are four widely-practiced approaches to pricing—none of which, by the way—provide the perfect answer to the question "How should we price our goods and services to guarantee we turn a profit?" The four common practices to pricing are: • Find the competition's price and match or beat it • Apply a desired gross margin to all products • Charge all the market can bear, or • Invent "the better mouse trap" and have customers beat a path to your door If one subscribes to the notion that the price at which anything is bought or sold—and not product quality, or the company's service or delivery record—is directly related to the ability of a business to sustain any degree of success, then why shouldn't it have a thoroughly developed and tested pricing strategy? In addition, that strategy shouldn't be of the "off-the-rack, one- size-fits-all" variety, either. Does your signage business have a pricing strategy yet? Want one? Let's get started then, shall we? B Y V I N C E D I C E C C O Make it Your Business ARCHITECTURAL AND ENVIRONMENTAL RUNNING THE BUSINESS

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