For a new business, pricing strategy plays a key role in determining its market value during the launch of the product. However, these pricing decisions are made hastily, ignoring the costing factor, which could be crucial in saving money in the longer run. For MSMEs and startups, these strategic considerations are also important in analyzing profit margins or the risk of incurring losses.
Many new businessmen, MSMEs, and decision-makers adjust prices to retain customers and achieve sales targets that show profitability. More often, they end up being costly decisions, resulting in profit erosion. Business leaders understand that there’re various tools that are designed to solve the costing issue, yet, they fail to understand the significance of cost when it comes to making strategy-based pricing decisions.
Amidst the competitor pressure, it’s possible that businesses may connect their own prices nearby to that of a competitor. However, it’s not the best strategy to gain profitability. In fact, it reduces profitability. If we talk about the B2B pricing strategy, you should not set a price of your product without analyzing the cost attached. Remember, the goods that you need for your business would turn out to be a recurring cost. It’s better to combine it with your production cost in order to come to a common point where you can make a profit for each unit your produce.
Businessmen often borrow funds from lenders to flourish their business. They may want to use it to enhance the production capacity or use it for minor business expenses. Either way, funding from the lender falls under the credit category and should be treated as a cost. There are times when businesses misuse the credit amount to make unnecessary purchases that may affect their relationship with investors and lenders.
If you’ve been running a business for a while now, you should know that your lenders can obtain your business information through credit reporting agencies like CreditQ. They would analyze your financial health before lending you funds.
Also, if you’re dealing with the wrong kind of people in the business, such as vendors with whom your money is stuck, they fall under the category of credit defaulters. In such a case, you can take the help of the CreditQ platform to settle your money. It influences your costing as you experience a cash crunch, and you may fall into a bad debt trap. Their team of experts can help you in payment settlement so that your business stays away from financial debacles.
Another point to ponder is that if businesses ignore the costing factor, it is likely due to the over assumption of the customer price index. Take note that customers may not be as price-sensitive as businesses assume them to be. A businessman should not think on the lines of one size fits all. You may have different production costs as compared to your competitors. It could be possible that the sales team is unaware of the product margin that is in sync with costing. They may not know whether to adjust the prices well. It is due to the lack of knowledge and awareness that costing is ignored while creating good pricing strategies.
Many new businesses fail to gather the customer’s perception about the product or what do they need. Understand if the price is the only reason that influences their decision to buy a product from you. Or, is it a great customer service that makes an impact on them. If we talk about the loyal customers, they look beyond pricing and expect a seamless purchase experience. You can build your costing strategies around these factors to gain profitability as well as the trust of the customer.
The bottom line is not to ignore the costing factor while making important business decisions. If you fail to include the costing factor, you may realize a subtle disconnect between what you want to achieve and your profit margins. There will also be confusion among the sales team that looks to complete targets and attain a profit margin, but due to mismatch between the sales and pricing strategy that could impact the profit ratio.
