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Showing posts with the label Pricing

Price Elasticity of Demand: The Ultimate Pricing Guide

Price Elasticity of Demand: The Ultimate Pricing Guide Understanding how consumers react to price changes is crucial for any business. This concept, known as  price elasticity of demand , measures the sensitivity of the quantity demanded for a good or service in response to a change in its price. This article delves deep into the world of price elasticity, equipping you with the knowledge to make informed pricing decisions, analyze market trends, and ultimately maximize your business success. What is Price Elasticity of Demand? Imagine you run a coffee shop. If you raise the price of your lattes by a dollar, how many fewer lattes do you expect people to buy? Price elasticity of demand tells you exactly that. It's a numerical value that indicates the  proportionate change in the quantity demanded  (percentage change) divided by the  percentage change in price . Here's the formula to calculate the price elasticity of demand: Price Elasticity of Demand (PED) = (% Change in Quantit

The key to setting profitable prices for your products and services

One thing I've learnt over time is to never leave anything to chance, especially in business. It's important to make data driven decisions. This means collecting and using the information around you to choose those options which give you the best outcomes. While you will not always get it right all the time, it's important to err on the side of caution. So with that said, many small businesses seem to be unknowingly undercharging for their goods in an effort to be competitive. They set prices based on the markets and totally ignore their internal cost structure. Some industries (like retail) are about moving volumes. The profit margins are often quite small and so the only way to be profitable is to sell as many units as you can, while minimizing your costs. However, you can only manage your costs effectively, if you understand them. How to set a good price There are 3 factors to consider when setting prices: a.) Your costs b.) Your competitors c.) How much your customers

Are your prices really profitable?


How to calculate costs for beginners

How to calculate costs for beginners When starting a business, many small business owners make the critical mistake of failing to charge competitive prices. This is often due to a failure to differentiate between revenue and profit, but more importantly, because they ignore “fixed” costs. This article will cover basic costing for beginners. You will get the answers to what is costing? What are fixed costs? What are variable costs and how to calculate costs for beginners? Ready? Great. Let's start by understanding costs. What are costs? Costs : are all the money you spend to produce or sell your product or service. For example- if you are producing shirts, your costs will include the money you use to buy material i.e. cloth, buttons etc., labour and advertising expenses to promote the shirts. What is costing? Costing (or Break even  analysis) refers to the way in which you calculate the costs of producing your product or delivering your service so as to determine the profitability