When it comes to cash flow, there is a lot to think about but nothing is more critical as a success to a small business than prices you charge. An important decision you’ll make is pricing.
Today, I want discuss how to make pricing decisions in a dynamic and volatile market.
Think about it.
When you can’t pay your suppliers, your relationships slowly but surely begin to deteriorate. And, if it gets too bad, you’ll soon find yourself out of business.
So be on your guard and make sure you have enough cash on hand at all times to run your business at optimum performance.
Formulating the right pricing strategy can be a very tricky business.
If your price is too low, you may not be able to make or cover your expenses. But if you price your items too high, you may not be able to sell at all.
Market value is almost always the best bet for pricing and it’s subjective.
The problem is when the market is volatile and things are changing quickly, you have to be able to keep up with the changes or else you could unknowingly be shooting yourself in the foot.
Those that took the path to compete on price often found themselves in pricing wars with competitors.
During the years when I worked in Sales, I saw first hand how competing on price led to huge cost cutting and job slashing programs that in the end damaged the reputation of many companies. And, when the economy turned around or became more stable, recovery was virtually impossible, if not extremely difficult.
On the other hand, some organisations did what sounds like a mad thing to do. They ignored pricing and set about to work out how they could increase the value to their customers.
As a Sales Rep I spent more time talking with customers to find out how we could add more value.
And that lesson is… Always be adding value.
As surprising as it sounds, when the economy turned around, it was the value-focused companies that I worked for that ended up as leaders in their industries.
Instead of cutting costs and slashing jobs these companies survived and thrived, becoming market leaders through reinvention and innovation.
Pricing, I discovered, is an arbitrary thing. People will pay the price it’s worth to them and sometime more. The way they determine a thing’s worth is ever-changeable and based mostly on that rather abstract notion of value.
People will always buy when the value proposition is right for them.
So, when you’re faced with a volatile market or experience times of economic difficulty the very best thing you can do is to ignore pricing and focus on adding value. That way the income you generate isn’t compromised but instead you have a healthy cash flow that sustains and grows your business.