Pricing for Profit (01)
Most businesses consider that it is a natural occurrence or challenge in developing profitable products or services so that they never need to review the process of pricing. It also often sounds when some CEOs, CFOs or even business owners tout their business success because of profitable presenting services and products; it is wondered what their real comprehension in pricing is as it is related to profitability of the business.
It is true that all business wants to gain profit and they believe they are actually profitable; however, there are still a big percentage of businesses all over the world that do not have any ideas the basic concept of profitable services or products. It is actually commonly known that a truly profitable service or product has to breakeven in preparation for profitability, at least. By understanding the most common definition of breakeven, business owners could apply it as the point at which a service or a product does not win or lose. In other words, the service or product that is set to the ability of breakeven actually has no either loss or gain. Those owners or businessmen need to know better how to add the profitability percentage onto the breakeven number on which they will really get profit based. The breakeven term is often found in fabrication or production where one could determine the required numbers to be produced to meet breakeven.
Let’s take a look at one example of someone runs business in furniture manufacturing. If he is planning to manufacture some sets of furniture, he would then need to know how many sets he needs to produce to cover his raw material costs otherwise known as breakeven, where all furniture sets he produces after that known number would be profit.
Contractors are also another good example where most of them will factor in all of the raw materials costs of each project they handle and simply add what they believe is an achievable percentage of profit. Yet then an error here is that they mistakenly factor in their labor costs into what they trust as their profit margin then when at the end of a project they actually don’t profit what they thought they should because the project dragged on too much time and consumed labor expenses.
It is an unfortunate for most businesses and contractors that perceived percentage of profit added to the raw material portions is actually only a perception of what they think as profit. Smaller businesses or contractors, operating as sole proprietors and in fact being truly operated by a single person, really have no need to worry about the actual calculation of breakeven as well as proper pricing.
It is true that all business wants to gain profit and they believe they are actually profitable; however, there are still a big percentage of businesses all over the world that do not have any ideas the basic concept of profitable services or products. It is actually commonly known that a truly profitable service or product has to breakeven in preparation for profitability, at least. By understanding the most common definition of breakeven, business owners could apply it as the point at which a service or a product does not win or lose. In other words, the service or product that is set to the ability of breakeven actually has no either loss or gain. Those owners or businessmen need to know better how to add the profitability percentage onto the breakeven number on which they will really get profit based. The breakeven term is often found in fabrication or production where one could determine the required numbers to be produced to meet breakeven.
Let’s take a look at one example of someone runs business in furniture manufacturing. If he is planning to manufacture some sets of furniture, he would then need to know how many sets he needs to produce to cover his raw material costs otherwise known as breakeven, where all furniture sets he produces after that known number would be profit.
Contractors are also another good example where most of them will factor in all of the raw materials costs of each project they handle and simply add what they believe is an achievable percentage of profit. Yet then an error here is that they mistakenly factor in their labor costs into what they trust as their profit margin then when at the end of a project they actually don’t profit what they thought they should because the project dragged on too much time and consumed labor expenses.
It is an unfortunate for most businesses and contractors that perceived percentage of profit added to the raw material portions is actually only a perception of what they think as profit. Smaller businesses or contractors, operating as sole proprietors and in fact being truly operated by a single person, really have no need to worry about the actual calculation of breakeven as well as proper pricing.
