Business Planning Considerations: Pricing and Cost Control Strategies - dummies

Business Planning Considerations: Pricing and Cost Control Strategies

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

As you define your business model and delve further into the business planning process, you will need to consider how you will price your product or service and how you can control costs within your business.

Be prepared to explain your pricing strategy, covering these points:

  • How your pricing is structured — to cover all costs involved with purchasing your offering or to inspire additional purchases of features, services, or benefits; to feature a single price option or options for products at basic and premium levels; to be firmly maintained or frequently discounted through quantity discounts, contract rates, rebates, coupons, social media network deals, and other offers.

  • How you’ve determined that people will pay the prices you’ve set.

  • What discounts, price alterations, or pricing incentives you’ll employ, if necessary, to spur trial, repeat, or volume business, and how your revenue forecasts account for those pricing variances.

  • How your pricing compares with that of your competitors, including a discussion of how your competitors’ pricing policies have changed as a result of consumer or financial changes your market has undergone.

Pricing has always been an important factor in business success. Its importance is even greater in a recessionary economy.

As you develop your business model, consider not just how your business will achieve sales, but also how it will control costs that can erode your profits.

Control costs in the following ways:

  • Reduce expenses by eliminating purchases that don’t contribute to your business and marketing strength, by finding lower-priced suppliers, by reducing payroll and benefit costs if doing so doesn’t risk the morale or vitality of your business, and by conserving and recycling both for cost savings and for environmental contribution.

  • Reduce your cost of sales by putting supplier purchases out for competitive bid, by negotiating for favorable prices and terms, by signing contracts for lower-cost bulk purchases, and by refining product designs and production process to shave unnecessary costs.

  • Eliminate unprofitable clients by helping them find businesses that can better address their needs, allowing you to focus on those who deliver greater bottom-line results for your business.

  • Reduce uncollected revenues with advance-payment and tighter credit policies, interest on past-due accounts, and termination of relationships with customers that cost your business more than they return.

Cost-control contributes to a healthier profit margin, which is the percentage of sales revenue that makes it to the bottom line as profit to your business. State your projected profit margin as part of your business model description.