NFIB

Are You Pricing Items Correctly?
11/ 26/ 2002

by Vicki Gerson

Determining prices must be based on a broad, thoughtful basis. Here are a few principles to consider when you decide what prices to put on your merchandise.

Decide if your markup is large enough to cover your operating expenses. Some small business owners make the mistake of offering merchandise at a low price and enjoying a large sales volume--but not realizing sufficient revenue to cover the costs of selling the merchandise. The other problem is if you set prices high, your sales volume may be so low you can't cover operating expenses.

That's why the best prices are those that yield the most dollars after meeting all your costs. Unfortunately, you can't use the same markup percentage for all items of merchandise. One of the guiding principles is that the price of each item should cover the costs associated with it, its contribution to the general overhead and net profit. Therefore, if an item is priced too high, it will result in a decline in sales. The result will be fewer dollars toward expenses.

Take a look at your merchandise and decide if the items are loss leaders, staples, novelties, fashionable goods or fast-selling items, and make sure you price accordingly. See what has been on the shelf for a long time and consider marking it down. Make sure you are selling your products with a prestigious name attached at a high enough price.

In the end, experience is the best teacher for analyzing the marketplace. Tour your competitors and see what prices they charge. Don’t be afraid to change prices for a few items and see what effect this has on your business.

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