In our blog of last week we considered a few vital things an entrepreneur should know about business or enterprise profitability. Closely connected to profitability is the aspect of product or service pricing. I know that the majority of enterprises adopt and follow the cost-plus pricing system, and this makes it critical to understand this principle, and of course other approaches to pricing. Don’t you think so? Remember the variables in the profit equation we saw last time; income less expenses equals profit or loss. In the income we have quantity and price as the variables. Do you get what I mean? Hope so. Now let’s move on.
While there are enterprises that price themselves smiling to the bank, there are those that price themselves into insolvency or bankruptcy and out of business. The latter is especially common with small enterprises, where the entrepreneur has very limited knowledge of costing and pricing, and more so is reluctant to consult the right people in order to get appropriate advice, not forgetting that the big players also sometimes get caught offsite on this with comical pricing blunders followed with quick U-turns. Candidly, in some of my casual discussions with various entrepreneurs, I occasionally discover some with hardly any clue about good costing and pricing principles. Let me say the following: –
Oh my, it’s time to run. Bye for now and best wishes.
The Wise Entrepreneur