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Three Keys to Successful Pricing

(January 2008) posted on Fri Jan 11, 2008

Setting the most profitable prices

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By Marty McGhie

Here’s an example: Months ago, I had a couple of our senior production staff approach me with concerns about us re-doing a job for a relatively new and premium client. They felt that the quality was sufficient the first time around and that the new client was perhaps taking advantage of us. I realized that they didn’t understand our pricing relationship with this client or just how important this client was, so I shared with them that this was a premium client that demanded the highest quality possible because of the product’s high visibility. I then showed them how the job’s pricing reflected that higher level of service. Immediately their attitude changed and they became determined to make sure the job was flawlessly produced.

Secure the bottom line

The second key to profitable pricing is understanding the costs of your business. Each job in your shop should be analyzed to determine whether or not the order is a profitable order. This requires knowledge not only about material costs and labor costs, but also overhead charges, related sales and marketing expenses, and any other costs that may be associated with the order. Additionally, you must comprehend the relationship of your company’s fixed costs and overhead costs to each job as it is priced.

Only by understanding the cost structure of your business can you determine whether your price is high enough to generate overall profits to the company’s bottom line. Too many companies base their pricing on what they perceive the market will bear or perhaps they simply match a competitor’s price without regards to the cost of the order or the overall costs of doing business.