Price items appropriately

Pricing is one of the activities that can either make or break a business. Good pricing will keep customers and make your enterprise profitable but poor pricing will drive away customers and send your business to make loss. There are three important things to keep in mind when pricing, namely: what price to charge, when to change price and avoiding losing money due to poor pricing.

Figure what price to charge
A good starting point for considering what price to charge is to establish what price the market is willing to bear. This begs another question, how unique is the product or service you are selling? Generally, unique items command a higher price due to absence of competitors. A wise business will balance the price it charges with the need to retain customers as illustrated by the experience of the first mobile phone provider in Uganda.
In 1995, the only mobile phone company was charging roughly Shs1 million to connect customers. Customers paid the money because they had no alternative. When a second company came on the scene with a much cheaper offering, customers fled from the first company.
There are people who are dealing in products or services that are also sold by other businesses. In that case, you want to be sure that the business still allows you the opportunity to make a profit so that you can continue in it. When I was in P7 vacation, I engaged in a market retail business that sold salt, paraffin and soap. It seemed that all other first-time business persons in the market were selling a similar product which had been got from the three or so wholesalers in the town. The products did not offer opportunities for selling large volumes or setting a high profit margin and I had to give up the enterprise after a short time.

Change price when necessary
At times, you may need to lower prices in order to boost sales or get rid of items that quickly become obsolete or spoilt. During peak seasons such as back to school time or the festive season, many businesses offer sales in order to increase the volume of items sold.
There are items where customers are price sensitive such as petrol where a Shs50 price reduction can attract many customers so that the overall profit is increased.

Do not lose cash
Businesses lose money when they charge a price that is too low to cover their operating costs and the cost of the product they are selling. This means you need to know your costs so that you price appropriately.
Businesses also lose money when they stubbornly stick to a high price and refuse to sell to customers offering a lower price especially when there are no other customers. This point is especially important when a business has invested in a costly asset which is lying idle yet customers are willing to pay a lower price for example rental property.

James Abola is the team leader of Akamai Global, a business and finance consulting firm. Email: james.

TIPS
How long am I willing to sit on the item? Consider how quickly you want the item to sell. If you don’t have the time or storage space to wait for the right buyer, price it to sell!
How much would I pay for this? Put yourself in the buyer’s shoes. Don’t start with the price you paid for it. Remember, there’s a big difference between retail and resale, and there’s a major markup on retail products.

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