Have you thought about Competitor Pricing vs Cost Pricing? Do you have a service business? And, is your price based on competition or cost of a transaction?
Entrepreneurs with service businesses often start out pricing their offerings on competitor pricing, and not the “cost of a transaction.” Your pricing as a commodity, and not realizing the differentiation in the value of your offering.
Apples to Apples, Competitor Pricing Vs Cost Pricing
Sure, if you have the same apple, you need to look at the price your competitor is charging to differentiate yourself, but rarely is your service the same service as another.
Pricing based on each transaction tells you how much money you need to cover your cost, and then build in a reasonable margin for profit. Businesses that know this number are more likely to thrive and do well in the bigger picture.
Understanding the costs involved help you to detail the actual value to your client, giving you a competitive edge, even when your pricing is considerably higher than your competition. You'll speak more intelligently about your offering than the competitor in your market, making customers feel more confident in your product.
The way you look at success will change as well. You'll want to know how profitable companies are, instead of how much revenue a company creates to judge success. After all, would you want a company that makes a $10,000 profit on $20,000 in sales a month or a business that generates $1,000,000 in sales, but struggles to produce a profit?
I don't know about you, but I would prefer the one that puts money in my pocket.
Getting to profit – Competitor Pricing Vs. Cost Pricing
Understanding the cost of each transaction forces you to focus on profit margins and puts disciplines in place. These controls will help you better market and service your client base, resulting in greater retention. You have a win-win no matter how you look at the result.
The right time to understand the cost of your transaction is now. Break it down in detail, and look for hidden costs, and then add extra padding. The amount you add extra will cover hidden costs that always come up after running the initial cost analysis. The extra padding keeps you from eating into the amount you add for margin.
We love our businesses when we are making a profit on each transaction and putting money in our pockets!