One of the biggest challenges that businesses have to face is often pricing. And this challenge applies to both startups and well-established businesses.
Setting it too high could push your customers away, while putting it too low will probably jeopardize your profit. That’s why it’s essential to understand the minimum advertised pricing policy in order to put things in perspective.
As such, it is important to know a few of the most common mistakes about pricing so you can avoid them. Here are some of them.
Not understanding the difference between markup and margin
Always remember that margin depends on sales prices, while markup, on the actual cost. Failure to understand the difference might be detrimental to your revenue. Not understanding the variation between the two will likely result in a loss of the generated income.
Disregarding the rate of market growth
Various factors often influence market growth. There are a number of products that have fewer chances to gain rapid market compared with others. Therefore, these products are not suitable for a specific penetration price policy. Keep this in mind.
Failing to list all the costs
To properly set the price of your merchandise, you need to know all the costs associated with it. So, try to list all the costs that you used for the product and then put them into consideration when thinking of your cash flow. Doing so will give you much easier access on how to defend your prices if it comes up.
Avoiding these pricing mistakes is important in building a profitable and stable business. Knowing each of these mistakes will give you leverage over competitive pricing and will help you understand how you position yourself in your market.