Financial Planning

The Price is Right… or is it?

The Price is Right… or is it?

Not enough thought goes into pricing.  Either that or the wrong thought processes are applied to pricing.  We see it time and time again in various businesses and particularly start-ups.  Over the weekend I thought about the often-seen “closing down sales” as I did a bit of shopping.  It occurred to me that there’s more to these sales than meets the eye, in part, because there’s more to pricing than meets the eye.

When it comes to products and services, it’s often a case of what should I sell it for as opposed to what do I need to sell it for.  New businesses will often base their pricing on what they see their competitors doing instead of first understanding how much revenue they need to cover the rent, utilities, inventory, wages and the list goes on.  Understanding that these items are critical to business owners’ ability to function commercially, covering these off in the price of what they’re selling will determine the viability of the enterprise.

It’s not just the small business owner that is faced with these realities, but at least they have the ability to set their own pricing.  By adding value, varying services, getting creative with their marketing, price variations may sit well with the target market.  However, there are some instances where the practitioner has a lot less wriggle room because the customer doesn’t understand or accept the true value of the services.  So it becomes tricky when the customer bucks at the price.  So what can you do?

Doctor Doctor, give me the news

Elizabeth Oliver, a GP based in Sydney, wrote an exceptional article  that found its way into the Brisbane Times.  It begins with a patient suggesting Dr Oliver was making easy money and ends with the realisation that after all costs have been accounted for, there’s not much left over.  A realisation that for many GPs around the country is a bleak reality.  From a $70 fee:

35 per cent goes to the practice for rent, electricity, equipment, and to pay the receptionist and nurse. After tax, my Medicare levy and student debt, I receive $24.56.

But I bulk-billed him (the patient), which means I made $13.01. That dizzying sum covers sick, holiday and maternity leave, superannuation and about $8000 a year in fees, insurance and continuing training.”

Work out what you need to cover before setting your price

And for that matter, work out how much profit you need to make to ensure that you take home an amount that you can live on and live with.  Remember, you probably didn’t get into small business to just scrape by.  Think about desired lifestyle as well as contingencies.

Talk to us about all aspects of your business numbers because we believe that small businesses can, do and should benefit the owner(s) and their families.  So it’s not just a matter of knowing your numbers but what your number should be.  If you don’t, it may be you that pays a hefty price.