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Home Business: Business Pricing Ideas

Apr 11, 2008
Home based businesses are expanding and many business owners are enjoying making their own money. Profits are the reason that all people go into business. The American dream is to make as much money as possible. A business owner that is not making money is losing money and time. The basis for making profits is to have accurate pricing. Accurate pricing needs to cover your business costs enable you a reasonable return and be attractive enough to attract customers. Pricing can make or break your business.

Pricing for their time and expertise causes many new business owners trouble. Some new business owners will work cheaply because it is a job they can finish quickly while waiting for a job that they really want. This is fine when starting out and you want others to learn about your company. The down side of this is that they will associate your business name with the word "cheap". No business owner wants to be known as this if he plans to be in business for some time.

Another attitude taken by some business owners is that they should only work for outrageous wages. These owners have a set price and will not take any job that does not pay them this price. This attitude causes their business start up to be much slower than others. The one advantage of this style of work is that it helps build a firmer foundation when the business is established.

There are some basic principles is use when beginning your own home business. You always need to remember that all your company costs have to be covered by your pricing. If you lower your costs, you can lower your pricing. Make sure to include the surrounding environment when pricing a job. Your pricing needs to be in a comfortable zone for your customers. Be sure to include your time, investments and risks while considering your pricing.

Pricing needs to include your direct costs, overhead and labor expenses. Direct costs are the costs of your parts, supplies and materials. Overhead expenses include rent, taxes, office supplies, insurance and utilities. The labor costs are the salary and benefit expenses for your staff. You should calculate labor cost with a simple formula; hours multiplied by wage than add in a percentage for fringe benefits. Many business owners use a profit margin of 15 to 20 percent. This profit margin is what you will use to expand your business.

At some point you will want to increase your profits. This is usually done by raising your prices. A quick evaluation of your company will allow you to see if you have some latitude to raise your prices. You can also research your competitors or do a competitive analysis on them. A competitive analysis is legal and can be accomplished by reading their advertisements, talking to suppliers or employ mystery shoppers. This analysis will show if you will have an advantage over your competitors.

All business owners are concerned about profits and pricing. Profits and pricing can be raised and lowered as needed or desired. Time and experience are the best ways to teach you about pricing and profit and what works best for you.
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