As Will Abbott from Randall & Payne explains:

As business advisors and accountants, we’ve seen our clients’ materials and supply costs going up over the last year, and many of them are having to pass on those costs to their customers. With the downturn looking set to continue well into 2012, now is the right time to have a look at your pricing for the year ahead. Aim too low and you could be left committed to loss-making projects or services, draining profit from your business. Aim too high and you could scare off your customers. There are a number of options, but the two most common ways to price services and products are: ‘cost-plus’ pricing, involving calculating how much your business has to pay to develop, manufacture, market and supply your product or service and then adding a percentage mark-up, or ‘value-based’ pricing - simply determining how much customers will be willing to pay.

The problems start when you have to decide how much to mark-up? Do you listen to your head or your gut!

Our recommendation is to listen to your head and don’t make gut reactions that could cost you later. Research your market thoroughly - you may think you know what’s happening, based on previous years trading, but times are changing fast. Know what your competitors are doing. They might be reducing their price to gain market share from you. Find out how low their price is and how long this will last. If you can’t compete on price then maybe you should look at ways to improve your product's benefits to consumers or give value added by offering extras.

Never forget that your customers are human. If you have to put your prices up, explain why. Trying to hide an increase from a valued customer can damage the relationship and may result in them looking elsewhere. Again, you may be able to use added extras to your products or services to keep brand loyalty and reinforce the benefits of buying from you.

We recently surveyed our clients, asking them if they could identify which products or services deliver most of their profit?

Surprisingly, not all of them could. It may seem like a simple question, but if you aren’t keeping track of materials and overheads it can be difficult to spot which products and services really deliver your profit. The start of the year is the right time to have a fresh look at your pricing strategy and make sure it will work for you

Contact Will Abbott for a free initial 2 hour review at Randall & Payne, Gloucester on 01452 723377