Price determination – Profit and other contributing factors

If you are in retail or reselling business, setting price is not a concern, but if you are the manufacturer or producer, or if you are going to provide some sort of services then setting price can be a very difficult job. At times, new startups set prices in a hurry and focus more on making sales, only to find later that even though they’ve made good enough sales, the accumulated profit is not up to the mark. That is why when setting prices; you need to keep each and every cost in mind, along with adjusting the variables like competitor’s price and consumer’s purchasing power into the price. A price too low would bring more sales but no profits, whereas a price too high will bring large profits but very few sales (unless you enjoy some sort of monopoly). Therefore, the price needs to be spot on.

Rule of thumb when setting prices:

Try to kill your competition by setting low price, but make sure you are not choking your own business of profits. Whatever pricing model you use for pricing your products or services just remember this one point; you’ve got to set a price that will give you an edge over your competitor, still providing you with much needed cash to cover your costs while earning some profits. One more thing, the price you set initially is not something written on stone, it can be changed and it should be changed if the initial price doesn’t prove to be the right one for any reason.

Costs & Expenses:

The price should cover the cost of production and advertisement, that’s simple and everybody knows that. Where most businesses go wrong is when they are calculating their costs of doing business, they often overlook the possibility of some future expenses or completely ignore one or two indirect expenses (transportation & depreciation, etc). Therefore, before you start calculating the right price, you must be having an idea of all costs or expenses that will occur in course of business.

Different Prices for Different stages:

If you are just starting, your first goal must be to enter the market and capture as much market share as you can. At this point of time, you probably need a price as low as possible; some businesses even take a risk of setting a price lower than their break-even point. However, once you’ve managed to make inroads, you can raise your price, later when you’ve established as a well known brand, you can always set a price that offers maximum profits.

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Computers Wholesale Suppliers

A brief introduction of Money market instruments

The market that helps short term borrowers find the lenders or vice versa, is known as money market (similar to the other financial markets however “short term” is the key word that distinguishes money market from other financial markets). Borrowers go to the money markets when they are in need of short term loan and the lenders provide them with the required financing. However, both borrowers and lenders do not trade in cash. Securities which are traded in money markets are called money market instruments. Following are some of the most commonly used money market instruments.

Commercial Papers:

Normally banks and financial institutions issue commercial paper, which is a promissory note that entitles note holder to get the face amount on a fixed date. Usually commercial papers are issued for short terms and their maturity period ranges from 1 to 270 days. The only guarantee you have when purchasing commercial paper (to get the promised amount or at least the amount you’ve invested) is issued by the bank or corporation itself, which is why they are known as unsecured promissory notes. Because of the high risk involved, issuing companies offer higher interest rates to investors.

Treasury Bills:
Very similar to commercial papers, however treasury bills come with the guarantee of the treasury department of United States, making them an investment with very little risk. The maturity periods often extends to one year (starting from 4 weeks) with no payments preceding the maturity date. These bills are divided into two categories known as marketable and non-marketable securities. You can buy directly from treasurydirect.gov or from brokers.
Certificate of Deposit:
The investors deposit some amount into banks or financial institution and get a certificate known as Certificate of Deposit. Interest rate is fixed (the bigger the amount, the higher the interest rate will be) and a fixed maturity period as well. You cannot take out your money before the fixed date, in case you really need to withdraw; you’ll have to pay a penalty.

Banker’s Acceptance:
Banker’s Acceptance is basically a draft accepted and signed by some well known bank. The acceptance by that particular bank makes it an instrument used in money market as it carries very little risk. Once a time draft is approved (accepted) by some bank, the drawee can sell it in secondary market in case he/she is in need of immediate cash (of course at a price lesser than its face value). It is very similar to US Treasury bill; however the guarantee comes from some reputed bank instead of US government.

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Economical Start Ups – Avoid using up all resources

Cheap-to-run businesses are just the thing you need in present situation, and there are plenty of them, for example consulting business, online businesses (e.g. drop shipping), real estate brokerage, and the like. Some of these economical businesses initially need a huge capital to start with, and every so often people get carried away by the excitement and spend on things that are not really necessary in the start, it makes business startups a risky endeavor. Overspending at any stage of the business is obviously a bad practice, but being wasteful when you have just started, is asking for trouble. In case the business fails, it'll be so much more difficult to recover from that failure. Huge spending in the start will make you impatient and even the small setbacks will felt like a blow.

Start small and grow rather than starting big and diminishing:

Some startups, while trying to devastate their competition, spend too much on marketing and other stuff, which overburdens their finances. As a result, the first business that gets hurt by this excessive spending is ironically their own. Rule of the thumb for most businesses is to start everything on trial bases, instead of jumping in the market with high hopes and putting everything on stake.

Plan & Research:

Make a list of all requisites and expenditures that you may need in the start and then try to avail most of the low-cost alternatives available. For example, when you are looking for office furniture, you can save plenty by getting some second-hand office chairs and tables (in good condition), as the brand new furniture hardly plays any role in the final decision of a customers who pays a visit to your office. Similarly, don’t indulge in extensive borrowing from banks or other resources; do not unleash some lavish advertising campaign as well.

Niche Segment:

You cannot capture the whole market all at once; you have to start by small segments. Big ambitions are fine but make realistic targets and go step by step. Niche is the keyword for any small business, even more so when you are just starting. Targeting a specific set of customers allows you to save on research, marketing, production and distribution. Also, starting by focusing on a small niche won’t put other relatively large businesses on the alert, saving you from some serious blocking up tactics that these business can employ to choke your business in the start.

Source:
Wholesale Trade Suppliers, Dropshippers, Distributors & Manufacturers

Valuing a business before investing into it

Business valuation is the assessment of economic value (Fair market value) for that business. You may need business valuation for a number of purposes, for example when you are looking to invest in some business, or planning to buy/sell some enterprise. Business valuation is not only handy when investing into some business, it also helps in taking better decisions when you are getting into partnership with someone or seeking loans for your business. Valuation is normally carried by professional appraisers, first because it is a complex task and needs professionals to do it; second an outside party will provide a more objective and neutral report. However, a better understanding of what contributes into the valuation of businesses will help you to progress into the right direction.

Just like any other financial report, the appraiser or valuator needs to disclose what approach has been applied for business valuation as all approaches have different pros and cons. Three approaches mostly used for business valuation are

i) Asset based approach
ii) Income based approach
iii) Market approach

Sometimes a combination of all of these approaches is used.

Asset Based Calculation:
Anything of economic value, that a business own is called an asset. As the name suggests, in asset based approach a business worth is calculated as the sum of its assets (both tangible and intangible) minus the total amount of its liabilities. These figures are picked from balance sheet. In liquidity based approach, assets are valued by the net amount they can generate in case their owner decides to sell them in the market.

Income (or earning) Based Approach:
Several methods are used in Income based approach, but the most appropriate method is "discounted cash flows". Unlike asset based approach where business is valued by the value of assets, this approach focuses on the future earning potentials. The drawback of this approach is that it depends mostly on the projected cash flows and expected returns, which are not guaranteed to be correct.

Market Value based Approach:
Market value based approach seeks to determine the business value by comparing it to some recent sales of similar type of businesses. There are no real calculations involved and this is merely an estimated value, which relies on the simple demand and supply rule for the markets.

Most experts recommend a combination of these approaches for a more realistic result. There's no single approach that will suit all types of businesses; stakeholders can choose an approach of their liking or leave it to the professional valuator to decide the most suitable one.

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Using Marketing Information System to Perfection

What is the difference between a good marketer and an average marketer? Probably the most vital one is the ability to anticipate the demands and trends in the targeted market; it is in fact the essence of marketing. Marketing manager, who can foresee coming trends or demands, is a piece of good fortune for the business. Given these forecasts are based on actual information and figures, rather than just gut feelings. The businesses that can “smell the blood” (anticipating changes) and “go for the kill” (prepare for the upcoming boom in demand) always manage to get their hands on the biggest share of market.

To help managers foresee the change in market or customer’s preferences, you need a sound information system, which is known as marketing information system. Marketing information system collects the relevant data; organize it into something meaningful, make recommendations based on these figures and than stock it up for future use. Any marketing information system that lacks in any of these three departments is nothing but an encumbrance for the business.

Among these three components, the first one is also the most important one, because the effectiveness of the entire system depends on the availability and correctness of information. There are two types of resources, normally used for collecting data. Primary resources, where the company carries out the research itself, through different means (interviews, observing consumers behavior, etc) and the secondary resources, where research work of some outside party is used (e.g. government or some research specialist firms). All of these resources have their own pros and cons and the people involved in the decision making should choose the source carefully, consistent with the quality of the data required and the cost.

Then comes the organizing part, where this raw data is sorted out and organized into something purposeful. If the information was collected through primary resources, then this task of organizing the information should not be much of a problem, however if secondary resources were used, it may take some time to segregate required bit of information. Even that has been made easy by powerful computers and data stored in electronic forms.

Last part is deriving results and making decisions based on these figures. This is done mostly by the management, but the success of these decisions is based entirely on the figures originated from the marketing information system. As you can see, marketing information system is a basic requisite for the most important decisions; still many businesses continue to operate without a proper MkIS.

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Wholesale

Marketing for small businesses with low budget

If you are running a small/home based business, you are supposed to be low on budget. That's quite obvious; consider it an advantage or disadvantage, but small or home-run businesses can't spend fortunes on marketing that is not generating sales in real time. For this type of enterprises, this is just so important to ensure some return on all investments they make on marketing. Small businesses do not have the funds for unproductive marketing; they need sales to keep up. In this regard, first advice and the most important one as well, do some research and make sure that the product you are going to offer is already in demand. Remember, if you fail to do this, you are most probably in for a disaster.

Choose a market segment and stick to your niche market:

Targeting the whole market may sound more lucrative but that's not practical for small businesses, at all. They do not have resources, funds or skills for that kind of penetration, for them the best option is to choose a particular segment and design their products in line with this segment's needs and requirements. Remember, by choosing and serving some specific segment of the market, you can effectively kill half of the competition, straight away.

Be consistent and steady:

Don't judge the success of your marketing campaign on day to day basis, some days your cold calls, promotional e-mails or other marketing attempts may generate lots of leads, while on other days you'll find yourself not up to snuff. But you need to be consistent and patient, especially when the times are tough like recent economic crisis. Keep a note of your conversion rate, work extremely hard to put the required finishing touches if your conversion rate is somewhat below average. You can boost it up by working on minor things like your landing page copy or improving the quality of your follow-up calls.

Internet & Social Media Marketing:

Internet can prove to be a stroke of luck for small businesses, in particular with the inception and growth of social media networks. For many small businesses, Internet and social networking websites can prove to be so effective that ignoring them should be declared a crime, for their own betterment. Using these social networks and social media websites, with a little creativity can produce unbelievable results, and the best part is that it won't cost you a dime, as long as you can come up with something interesting, informative and valuable to share with your targeted customers.

Source:
UK Wholesalers