Not long ago, I had a discussion with a client who runs an eatery business. Their main concern was that they may not be making money despite sales coming in. They were starting to rethink some things after an incident with a client recently opened up his eyes to something.
In the bid to offer the best, they try to use the best so they sell farmers choice sausages for example unlike every one else. Farmers choice sausages are really delicious and people buy them a lot.
However he realised they buy a pack of sausages at Shs 35,000 but based on their pricing they sell the pack at Shs 30,000 if you look at their pricing of Shs 1,000 per sausage.This means they lose Shs 5000 which has been the case from when they started operating.
A closer look and scrutiny showed the same for other products too. For some, they were selling and getting back exactly what they had put in meaning no margins at all.
The truth is many business people don't approach pricing with the keeness it requires. Many price merely because every one prices that way without considering what it is they exactly put in to deliver.
Pricing is a scientific process that encompasses all your costs of delivering a service or product. It includes cost of materials, cost of production like power, water,labour and most importantly taxes.
If you don't factor in those when pricing then your bound to make losses.
For most of the part you will be seeing money come in and thinking this is it, we are making money yet you'll never stop adding money into the business to cover those short gaps forever.
Don't price your products because John is also selling at that price, your cost of sale or production may not be the same as John.
Sit down and calculate every single expense and factor it in your final pricing. Don't forget your mark up that should never be below 30% at at least.
Jaluum Herberts Luwizza is a Speaker,Writer and Business Columnist with the Nile Post.He is also a Business Consultant at YOUNG TREP East Africa's No.1 Business Management and Consultancy firm that helps people start and grow profitable businesses and YTS Associates Certified Public Accountants.
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