Awards & Engraving

June '17

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52 • A&E JUNE 2017 W ouldn't it be wonderful if an omnipotent source provided you with perfect advice about running your company? A divine interven- tion, if you will, to questions like, "Are we charging enough to make a fair and decent profit?" or "Should we hire (a) nother salesperson?" For some reason, I am often asked if there is a foolproof method for calculating prices for products and services. Well, there is no magic formula, but there are a few key principles you can consider when pricing your products. You could select from the four widely accepted approaches to determining prices: • Set prices for "all the market can bear," • Calculate your products' cost of goods sold and set prices using a desired gross margin, • Build a better mousetrap and cus- tomers will beat a path to your door, and • Become aware of competitive prices and price accordingly. Be aware that each of the above approaches, as a stand-alone strategy, is flawed. Once you become familiar with each principle's merit, only then can you develop a blended pricing strategy that is a perfect fit for your business. Be forewarned, though. From time to time, you will find it challenging to stick to that pricing strategy even when your conscience tempts you to drop prices in order to capture a piece of business. Also be aware that, if you are truly a custom gift/awards shop, promotional products should not be your bread and butter. You can offer them as last-minute add-ons to a good order, but know that they are gener- ally lower margin products in an awards shop. Keep your focus on your business goals in order to maintain success. BALANCING DEMAND WITH WHAT THE MARKET CAN BEAR First, accept that you will have trouble determining "all the market can bear" until you've actually gone to market and sold something. Periodically, don't be afraid to raise prices to test the waters. Have you ever, mistakenly, overcharged a customer for an order, only to find the error after the invoice had been paid? The customer never challenged the price, but instead, gladly paid you. I'm not saying such a mistake should go uncorrected, but it should teach you something. In an indirect way, you have just tested the market for all that it could bear. Of course, a "test" with a sample size of one does not mean you should imme- diately raise all your prices. Still, it is an indicator that you may be able to fetch a better price on some products—particu- larly promotional products that historically do not command premium prices. Perhaps a more likely example is when a prospect asks you for a quote, pauses, and then leaves saying, "Let me think about it. I'll be back." Sure enough, two weeks later that same prospect returns and places the order. He might say, "You know, I checked other places and this is the best deal." You should interpret that as—for that com- bination of quality, service, and delivery and quantity—there are others out there selling it for more. BALANCING PRODUCT MIX WITH YOUR GROSS MARGIN GOALS It amazes and demoralizes me simulta- neously how so few awards and custom gift business owners are familiar with the term "gross profit margin." In the trade show seminars I've presented, I regularly poll the audience for how many could define gross margin (GM), calculate its value, and/or know what theirs is. Typically, about 10 percent of attendees' hands go up. Imagine my dismay when recently I posed my usual query to an assemblage of several dozen Take An Introspective Approach To Pricing Products Profitably Rather than focusing on promotional products, seek balance and stay focused on business goals by Vince DiCecco

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