Understand what Price Management is and how to apply it to your business – WAU
Knowing how to do price management efficiently is what can put a company in a comfortable financial position. Whether selling products or selling services, it is necessary to consider from the market to internal costs when pricing.
How much does it cost for your company to work? This is a question that should be asked of every entrepreneur who wants to have good financial health, balancing how much he receives in the face of what he needs to invest monthly for the business to be successful.
In the midst of this, a very natural doubt arises: “after all, how to manage prices efficiently?”. Estimating is never a good option when it comes to a business.
For a company to carry out its activities, a lot of money needs to be invested, and this has a direct impact on the price charged for a service or product. The faster this understanding is obtained, the lower the risk of losses and even bankruptcy..
In this content, you will finally understand how it is possible to carry out a price management with solid bases and which presents good results. Follow!
What is price management and what is its importance?
Pricing is a common issue for any company, regardless of whether it sells a product or provides services. It charges for its main activity, and these values need to be defined within important and solid bases. After all, how much to charge for what is marketed in a business?
This is the doubt that gives rise to the importance of price management. The concept means nothing more than the control and continuous observation of how much is charged for products and services in a business.
For that, it is essential to follow some questions related to the company’s activity and everything that involves it, especially, how much it needs to be disbursed for its operation.
Pricing is not a simple activity. It is not enough to define how much the product or service will cost just by evaluating its quality and how much the market charges.
These are just one of the points that impact the company’s finances, but the analysis is much broader and deeper. Understanding how to make price management efficient depends on the financial well-being of the business.
The impact of price management for companies
Every company is in full operation for one purpose: profit. According to the size of the company, what it sells and its reach, it is possible to set sales goals and then build sales prospects.
There are always expectations that are consciously drawn and that place in the forecasts how much is expected in relation to the profit that can be obtained.
These values can be achieved, but it is important that it is realistic work. For the company to be able to reach its goals, price management is indispensable, since billing is directly linked to how much a company charges for what it sells.
The importance of this optimized definition of prices is, precisely, to always have a billing that meets your expectations, but the issue goes beyond that. Every activity has a cost, regardless of whether it produces what it sells or if it is operational, to deliver a particular service that is provided.
In the management of the company, all the money invested monthly is considered fundamental for it to really work.
Based on that, price management should be based on this total activity cost of the company and also on how much it is necessary to spend for a product to go to the market or a service to be provided.
How to make price management efficient?
Managing the prices a company works with depends on evaluating a number of crucial issues.
There are many costs, expenses and other factors linked to the pricing of a product and, to define the right numbers, you need to cross all this information.
Next, you will understand what are the important factors and what tasks must be performed to reach the results that will indicate which values to follow. See how to make price management efficient!
1. Calculate the company’s costs and expenses
It all starts with understanding how much your company needs to function. Absolutely everything needs to be considered, from how much is spent on office rent to expenses like water and energy bills.
Only what can be covered by these values are the products and services sold, so they must be priced based on that. In this calculation, there are two categories that need to be understood: costs and expenses.
These are different concepts that help to categorize where the company’s money goes.
- costs: all values necessary for the product to be manufactured or the service to be provided can be considered;
- expenses: are related to the amounts spent for the maintenance of the company, such as the rent of a shed, expenses with the maintenance of it, the employees’ payroll, among others.
Everything must be properly registered and accounted for. That way, the company knows what the overall amount is for it to work, so pricing should always consider a percentage to cover these amounts.
2. Track market prices
One of the points that help to understand how to make price management efficient is to maintain attention to the values practiced in the market. At this stage of the work, there are some issues that must be considered, but, as of now, it is important to consider that prices cannot be overly incompatible.
The market will bring the average, but, of course, it is possible to stay below or above that, always considering issues such as:
Prices that are too far from the market can drive customers away, but they can also create mistrust if they are too cheap. Credibility will always be in question, so it is important not to stray too far from the average.
Keeping a business running and delivering something of quality to the consumer are factors that require capital, and correct pricing influences that.
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3. Monitor results against goals
To achieve the expectations of investors and owners, a company needs to achieve financial goals.
Profit depends directly on price, in which case the values achieved over certain periods are closely monitored. Performance is always under assessment, and performance monitoring is what will help to get a perspective on whether pricing is sufficient.
It is natural that prices change little, as it is something that impacts consumers. Adequate management must be concerned with this, but, in parallel, it must remain attentive to how the financial results behave in relation to the goals.
If they are not being reached, it is a sign that it is necessary to rethink how much is charged for the service or product.
The ideal is that the financial department is always in contact with marketing and other sectors that work with important indicators in relation to the company’s revenue. This work together allows the company to know how to manage prices efficiently, without falling below the targets.
4. Use benchmarking
The use of benchmarking is one of the safest and most competent strategies to ensure that a business works within the parameters of the market.
In this practice, the indicators of other leading companies and competitors in the segment are put into practice in the organization itself. The proposal is to understand how the performance of these organizations can be applied in the business itself.
It is as if the financial results of other companies are evaluated, but, in addition to billing, costs and expenses are considered. From this, your company will be able to have access to market benchmarking, that is, the standard results obtained by competitors.
The advantage of this practice is simple: to understand how other organizations price products, in view of their respective realities.
In this search, you may find that other companies charge much more than necessary, that is, they have ambitious profit targets. Thus, your price management can develop from another perspective!
5. Assess the value of what the company sells
Value is different from price. This is almost business jargon, but it is a very important and inevitable concept.
Price management must always take into account what is offered, be it a service, be it a product, and determine how much it is really worth in the market. With this, it is possible to price correctly, with appropriate and compatible values.
There are some ways to consider these issues, such as the Company Name. If it is already a stabilized company in the market, certainly, its product will have another type of impact on the consumer.
Credibility will increase the added value, and this makes it possible to charge a higher price, regardless of whether it is more than the competition asks for. Even a product or service of greater value also has the methods, raw materials and processes involved.
Naturally, a natural leather shoe will be worth more than a synthetic shoe. In addition to the quality involved, there is the cost of production and raw material. Therefore, an effective administration will always consider the value of what it sells to determine the price.
Knowing how to do efficient price management ensures that adequate profit targets are achieved and allows a company to fund its activities. This is the ideal formula for a financially healthy business.
Thinking about it, take the time to understand a little better about how to increase the value of your brand through Branding!