Learning how to price items is among the most important things you’ll do as a retail business owner. It’s also among the hardest.
We can not stress enough how important it is to have a solid retail pricing plan. Fortunately, there are a couple of tips and trick you can pick up to help make your job a bit easier.
What came of this is a list of tips, that if followed correctly, will help you accurately evaluate your stock and price successfully. So without further ado, let us get pricing.
Know When to Make Money (and When to Take a Loss)
You don’t ever want to be that company that has things flying off the shelves but isn’t making a dime. It is one thing to want to price your stock competitively, but it’s another thing to have the ability to earn enough profit to be able to keep the lights on in your business and be able to cover yourself.
Though you wish to build a strong and loyal customer base, while also having the ability to make sales, you will need to bear in mind that the bottom line of what you can sell your goods for, while still making a substantial profit. On the flip side, however, you will need to know when it is time to call it a day with a struggling product and take a loss. Whenever this is true for a product, you need to realize that the longer those items stay put in your store, the longer they’re tying up the money you could use to purchase valuable goods. Pulling sales reports from your POS system can help you track inventory and pinpoint products which are not pulling their weight.
Do Recognize Standard Markups and Profit Margins Are Not Realistic
When pricing retail merchandise, it’s tempting to take shortcuts and price all of your items with the same markup. Quite simply, this is a really bad idea. If you sell a diverse variety of items, not all things will have the same potential markup. For example, many restaurants require substantial markups on menu item while convenience stores might only make a few cents on a gallon of milk. It all just depends on what you are selling. So in case you’ve got a variety of goods, you definitely shouldn’t price everything the same. Pricing is a nuanced game, so if you are trying to produce more general rules about markups, it is worth breaking your products out into various departments and categories at the very least, and setting rules at that level. If this seems tedious and complex, that’s because it is.
Do Consider the Competition
Never dismiss the competition. In fact, we’ll go as far as to recommend that you make a few incognito visits to your competitors. Taking note of the price they’re selling comparable items for will both provide you an idea of what price you will need to record things at to be competitive but also let you know whether you’re headed in the right direction with your overall retail pricing strategy. Once you’ve gathered pricing info from a few opponents, you have two options. The first is slashing your prices to ensure you win the business you are competing for (though you might not have the ability to afford this), or you charge a premium in an effort to convince customers that you are selling a superior product. Since both of these options aren’t ideal, we will recommend a third — pricing things similarly to your competition but blowing them out of the water with exceptional client service. Even if you price items slightly higher than the competition, nothing can replace acceptable pricing coupled with phenomenal customer service. It’s a winning combination.
Can Collect, Analyze, and Leverage Data
Your point of sale applications can provide you with an abundance of retail pricing details. Your system should be able to let you know how much you are selling of a given product over a specified period. It should also allow you to change your retail pricing relatively easily.
So in collecting and analyzing data, you find you have items which you can not keep on your shelves, consider increasing the price by five per cent for a few weeks to generate additional profit. After a few weeks, pull the data from your POS system to determine how the price change affected sales. If sales are unchanged, consider raising the price somewhat higher. Even if sales have dropped, but not by enough that you’re losing profit, you’ve found the sweet spot for the retail pricing of those products. On the other hand, if earnings plummet, you can always reverse the increases you’ve made. This process can be done on almost all items you carry. Retail store software developed for small business may give you the ability to discover exactly where that intersection is — and how it varies across the year — to make as much profit as possible.
If the concept seems foreign to you, let us break it down a bit. The basic idea is that you need each square foot in your retail store to be as rewarding as possible. For example, let’s say you’re given ten square feet and can put ten different items in that space, roughly one per each square foot. If you only have ten square feet, you’ll want to offer a combination of both mid and high-priced items which will allow you to garner healthy profit margins.
The same holds true for a shop with 800 square feet. Just because you have more room, thus more room to display additional things, you still want the items you showcase to be as profitable as possible.
This is something to consider when setting prices for your retail store. Could three small items fit in the exact same space as one large item? If so, you want to make at least the same profit on the large item as you do on three small items. In an ideal world, you’d want to have the ability to sell as many little high-priced and high-margin items as possible. But obviously, this is not an ideal world. So do your best with the variety of products you have at your disposal. Set the area you want to devote to showcasing your stock and take merchandise sizes into account when pricing. If you can not generate more money in gain from a larger thing, ask yourself if it makes sense to carry it.
Creating an effective retail pricing strategy is one of the basic building blocks of a successful retail business. Though a robust strategy is important, you also need one that can be analyzed and adjusted for improvements over time.
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