Profit is far different than margin or markup and often misunderstood. Many people also mistake cash flow for profit. The hardest part is seeing how these different parts interact and work together. Don’t be in the dark anymore about how to make a profit using margins, markup, and retail pricing strategies.
It isn’t your pricing alone that can get you profit though. What are some other strategies for saving money and being able to charge higher prices? Keep reading to find out and increase your bottom line.
Give Added Value for Your Services
Giving added value doesn’t mean giving away the farm. When you maximize the value of your service it also means that you can increase the price of your service. You need a valid reason to raise prices, such as technology-driven, accurate estimates and quotes.
What makes your company, service, or product better? It’s better to increase your value in tangible ways instead of only claiming you have experience.
Decrease Your Costs Not Your Quality
To increase your margins you need more than a high-value product or service, you also need to cut your costs. Unfortunately, many businesses take shortcuts like pay cuts and letting employees go. Hiring new employees costs $4,129 and takes 42 days on average.
During that time, you’re short-handed and you still have to determine the true skills of the new hire.
Similarly, many companies try to use inferior quality components and supplies. This will hardly even be a short-term solution.
To avoid taking shortcuts and destroying your quality and reputation in the process, remember some of these tips:
- Inspect your workflow for inefficiencies
- Perform services and install products to regulation and standards
- Purchase components and equipment in bulk
- Commit to long-term relationships with your supply chain
- Consider different work incentives than wages and salaries
- Build employee and customer loyalty
Choose Retail Pricing Strategies That Are Right For Your Business
To calculate retail prices, a few simple formulas can help. Retail price equals the cost of the item, divided by 100 minus the percentage you want to mark up, multiplied by 100. If you have a product that cost you $8 and you want a markup of 45%, it would look like this:
Getting your markup percentage for a target price is a bit different. This one is price minus cost over cost. Multiply the result you get by 100 for the percentage.
- (13-3)/3=3.33 or 330%
Some manufacturers have the MSRP or manufacturer-suggested retail price. This helps to keep things standard in the industry so prices don’t change based on someone’s whim. The problem is that if you use MSRP you can’t compete on lowering or raising your prices.
Bundling products and services together has been effective for various industries, including HVAC. Another name for this is multiple pricing.
The keystone pricing strategy relies on doubling the cost of the product. For products that have a slow turnover, this is a bad strategy that could be losing you profit.
Whatever strategy you use, it’s important to be consistent with your strategy. Changing your prices and your strategy too often will be seen as waffling. It doesn’t work in politics or in business.
Boosting Your Bottom Line With Margins
It’s important not to hyperfocus on margins, but to see them as one (important) part of a holistic campaign to drive your bottom line.
Enterprise Selling Solutions can help with software solutions to help cut inefficiency and boost customer service. We work with your favorite platforms and help to convert estimates into jobs.
Try our free demo to see how it works to save you money and generate revenue!