Do You Have Pricing Questions or Concerns Related to Your Business?
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Do You Have Pricing Questions or Concerns Related to Your Business?

If you have or are not sure about the appropriateness of your pricing read on to: (1) understand the basics about different pricing methods, and (2) learn about how a pricing review may be helpful.

By Paul R. Kramme, Kramme Consulting

There are many software companies that provide one or more pricing options to businesses in the sign industry and similar businesses.

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  • Some companies offer pricing services that are free, but most are not free.

    Some companies offer Cloud based access and others are not Cloud based. Finally, some companies are more robust than others regarding different pricing options that are supported.

    The focus of this article is limited to a discussion of different pricing options that are common in the sign industry. It is not my intent to offer an opinion regarding the pricing options supported by the different software companies serving the sign industry.

    Important Pricing Concepts
    Things you sell and to whom you sell requires price sensitivity. Your Pricing must be profitable while also being competitive. To determine profitability, you must know your costs related to equipment, labor, and materials. Profitability can be determined when you know project costs and price.

    When talking about Pricing there are some important concepts to consider including Price, Cost, and Gross Margin. Price represents the amount charged to the customer for goods and services (such as $1,200). Cost represents the total cost to produce the goods or provide the services (such as $700). Therefore, Gross Margin is Price minus Cost (such as $500).

    The challenge is that the total cost to produce the goods or to provide the services may or may not be known depending on the pricing software being used and your preferences in how the pricing strategies are setup.

    If the total Cost to produce the goods or to provide the services cannot be established by you and/or your pricing software, then determining Gross Margin cannot be established with any degree of accuracy. In essence you would be using a Pricing Only strategy. This also means that you must use your judgement to determine if your pricing is profitable and competitive.

    If your pricing software supports establishing Costs and therefore Gross Margin, then the ideal approach is to embrace this pricing strategy. In essence you are using a Pricing & Costing strategy where the pricing software will help you be sensitive to competitive pressures and also be able to provide accurate Gross Margins and Profitability measures.

    Pricing Methods
    Most pricing software vendors support multiple methods of pricing including Area Based, Cost Based, Per Inch (foot), Per Piece, and Table Lookup. Again, depending on the pricing software vendor these pricing methods may or may not support setting the price based on cost data.

    Area Based and Cost Based Pricing strategies are the most common. The following tables illustrate how each pricing strategy works.

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    Would a Pricing Review be Helpful?
    The answer to this question depends on the Pricing Software being used, and feedback you receive from customers regarding your pricing. Consider the following questions:

    • Does your pricing software calculate Price based on calculated Costs?
    • Do you have profitability and/or competitive concerns about your pricing?
    • Do you find that your pricing becomes less competitive as total costs and/or quantities increase?

    If you answered 'Yes' to one or more of the above questions, then a Pricing Review may be helpful.

    Why Do a Pricing Review?
    A Pricing Review would provide some valuable information regarding the following benefits:

    • Pricing based on Costs may help improve Gross Margins.
    • Pricing based on Costs will lead to accurately establishing costs and desired cost markups.

    A Pricing Review involves a three-step process:

    • Step 1 involves a review of your current pricing software relative to establishing costs
    • Step 2 involves capturing appropriate equipment, labor, and material cost data
    • Step 3 involves establishing desired cost markup values related to equipment, labor, and material

    For over 50 years I have used my math and analytical background and experiences to assist businesses including 10 years as a sign-industry owner. I have assisted hundreds of clients implement their pricing software, assisted them with pricing strategies, and guided them in the use of general ledger accounting programs.

    For more information I can be reached by phone at (515) 321-6712, by email at paul@pkrammeconsulting.com, or through my website at www.pkrammeconsulting.com.

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