Red Zebra Business Centre -Management Memos
October 2007. Making Measurably More In Your Business Since 1985!



In the accompanying article, the issue of price as a key factor in making a profitable sale, is canvassed. Pricing, often considered to be simple, is seen to be quite a bit more complicated than most people think. 'Full Value Pricing" makes competitive profitable pricing easy!

If you would like to take a look at an extremely easy, yet powerful approach to pricing, go to the tutorial page provided on The Red Zebra website.

This tutorial will not be taken down before November 9 2007.

Visit Now!!

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Over recent months, Management Memos themes have been focussed on developing better sales results. Pricing is a key factor in getting profitable sales growth. This month we take a tutorial, to help you make the most of this vital business element. At the end, we give you a chance to try the most amazing pricing tool you will ever see!

The Price Equation is Simple. Isn't it?

There is really no mystery in setting a price. After all, there is the cost, then there's the profit, and when you put them together, you get the price. Simple!

If only it were that simple! First of all, there is no simple answer to the question "How much has it cost?"

No mistaking the 'profit' from the sale, though. That's the bit in between 'cost' (whatever that is), and what you get. But, how much does that work out to be - really? And it is enough?

Then how do you deal with labour? The hourly rate is just as complex as the cost of goods. No, the Price Equation is nowhere near as simple as it seems!

How Much Has it Cost?

What does it cost?When you buy something to resell, you know how much you had to pay for it. However, that is not the whole cost. Just think if how much time it takes to buy some of those items where there's only a small quantity, and a bewildering variety of alternatives - for instance, spare parts. Compare that with buying bulk products with a very simple specification. It's common in small business not to recognise how much more it costs to buy the spare parts, compared to buying bulk items.

So everything you buy has cost how much you had to pay directly - PLUS a varying amount of other costs that include time to unpack and rack, time to take the goods into stock, and all sorts of other things.


How do You Deal With Labour?

If you are adding labour to what you sell, the labour has cost what you have paid the workers who supplied the labour, and some on-costs. But is that all? Definitely not!!

Suppose you were running a muffler shop.First thing on Monday morning, while there are no customers, you have your staff make up some standard bends - the ones you will use when the rush begins.  That will save heaps of time!

What is the labour cost of those standard bends you just had made? Is it the $80 per hour for which you charge out the labour? Is it the $22 per hour you are actually paying the people? Or is it free, because otherwise the staff would be standing around doing nothing?

As you can see, the cost of labour is not a simple question!

No mistaking the 'profit' from the sale?

'Profit' is the bit in between 'cost' and what you get. Well, that's 'gross profit', but since we can't be sure about the cost we can't be sure about the profit - even if we have made a sale and so we know what we got for it.

Don't give up!There are lots of techniques available to help you make more sales, and be sure you make more out of each of those sales.

Customer Value!Customer value

Everything so far has been about your costs and profit. The one element missing is 'customer value'. As the sales trainers tell you, the buyer needs to know that the value they will get from buying, will justify them handing over their 'big stack of money' to get it.

Get the price/value equation wrong - and there is NO SALE!

How do you establish what the value is for the customer, and what price will get you the business and maximize your profit? In this issue, we are considering pricing, and the answer to that question is a question about selling technique. It has been answered in previous issues. Sufficient to say here that there is no such thing as 'the price'. There is only the best price for this particular sale at this particular moment to this particular customer.

The Red Zebra pricing method is called the 'Full Value Pricing', because it allows you to make judgements at the point of sale, on whether there can be a marriage of values that satisfy the buyer, and gross profit that satisfies you. Go to the left side panel to try the examples!

 If you'd like to find out more, talk to us, or ask us a question here! Remember, there's no charge or obligation, and you get a whole hour's consultation free. This same offer also applies in New Zealand.