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Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Charlotte · Raleigh – Durham · Chapel Hill · Triad · Southern Pines · Coastal Carolina
Closing the GAAP to Scale Your Business
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919-230-4667
Scale Finance, LLC, Financing, North Myrtle Beach, SC
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The 5 Critical Cs of Pricing


What is the best price for your products or services? It isn’t based on how many customers you have, how many salespeople you employ, the standards in your industry — or even what you’ve charged in the past.

The best price is the amount customers will pay that effectively earns your company the maximum profit. It might be significantly higher than what you’re charging now.

To help determine your optimum price tag, here are five critical Cs of pricing:

1. Cost. This is the most obvious component of pricing decisions. You obviously cannot begin to price effectively until you know your cost structure inside out. That includes both direct costs and fully loaded costs, such as overhead, trade discounts and so on.

And it means knowing those cost structures for each item or service you sell – not just on a company-wide or product-line basis. Too often, managers make pricing decisions based on average cost of goods, when in fact, huge margin variations exist from item to item.

Traditionally, businesses have priced their goods and services based on their costs. But cost is often irrelevant in the buying decision of the purchasers. They never even know the cost. Understanding this basic, yet all important principle, is essential to determining the real profit opportunities in your business.

Your company’s gross margin potential is illustrated using the following model:

 

Potential sales 

=

Units sold X customer’s perceived value per unit

Less cost of sales   

=

Accurate direct and indirect costs of products/ services sold

Gross margin potential  

=

Dollars left to pay all other expenses and generate profits

 

2. Customers. The ultimate judge of whether your price delivers a superior value is the customer. Are your customers willing to pay more than you’re charging? The information you need to know is:

  • What is your customer’s expected range — the highest and lowest price points?
  • Within that range, what is your customer’s acceptable range – the highest or lowest he or she is willing to pay?

When you consider pricing strategy, ask your clientele for their input. Two simple questions: What do you think this product or service is worth? Would you have bought it at another price?

3. Channels of distribution. If you sell through “middle men” to get to the end-users of your products or services, those intermediaries affect your prices because you have to make their margins large enough to motivate them. You must also consider the expenses that intermediaries add. Make sure these third parties add value to the relationship between you and your customers.

4. Competition. This is where managers often make fatal pricing decisions. Every company and every product has competition. Even if your products or services are unique, make sure that you think carefully about your competitors from the buyer’s point of view (the only opinion that matters). If you’re not sure about how your customers evaluate you in terms of alternatives, pick up the phone and ask a few.

5. Compatibility. Pricing is not a stand-alone decision. It must work in concert with everything else you’re trying to achieve. Do you believe a fast-food hamburger chain can sell $10 filet mignons? Is your pricing approach compatible with your marketing objectives? With your sales goals? With the image you want to project?

Those objectives have to be explicitly stated. For example, let’s say your production goal is to even out the process so you can better control inventory. The last thing you want is a pricing strategy that forces seasonal spikes in demand that result in stocking problems.

Before making a final decision on what to charge for your products and services, examine these five critical Cs of pricing. With the right price, you’ll generate enough fuel to power your business.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, Wilmington, Washington D.C. and South Florida with a team of more than 30 professionals serving more than 100 companies throughout the region.

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Knowledge Bank

Hiring a Startup CFO – When to Hire a CFO & Why You Need One

Owner Financing of Small Companies – Debt or Equity Considerations

Will Your Merger be Blindsided by Fraud?

Series C & Beyond: How Growth Investing is Different Than Early Stage

5 Rules for an A+ Board Meeting for Investor-backed Companies

Understanding & Using Your Cash Flow Statement

Why Business Valuations are Helpful (& What do they Typically Cost)?

Managing Merchant Fees – Role of Zero Fee Processing

Can Accountants Value a Business?

Personal Guarantees – Should You Grant One?

10 Pieces of Advice When Someone Wants to Buy Your Company

Convertible Note Financing – Payback Time

Due Diligence Fiasco – A Look Back at HP-Autonomy

Applying for Business Loans – Hard Credit Checks

7 Ways a Business Name Generator Can Help Entrepreneurs

Citizenship by Investment Overview

Understanding the True Cost of Employee Turnover

How to Think About Valuation When Raising Venture Capital

What it Takes to Shift to a Recurring Revenue Model in Hardware & Software

Differences Between Major SBA Loan Programs – SBA 7(a) vs. SBA 504

Explore the Knowledge Bank…

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Recent News

Scale Finance Closes $20M ABL Financing for TRA

Scale Finance Leads the Successful Sale of Carolina Restoration Services

Scale Finance Advises FX HedgePool on $8M Series A Funding

SF Closes Acquisition of Midwest Outdoor Resorts for Travel Resorts of America

Scale Finance Closes $7 Million Senior Debt Financing for Travel Resorts of America

Scale Finance Advises on Acquisition of Falcone Crawl Space & Structural Repair

Congrats to Payzer for Closing $23 Million Equity Financing

SF Client Headbands of Hope Closes Strategic Growth Investment

SF Assists Semper Investment Company in Acquisition of ACM Removal

SF Client SentryOne Acquired by SolarWinds (NYSE: SWI)

Scale Finance Assists GPM with Acquisition by Netsmart

SF Client Broadstep Behavioral Health Continues National Growth Through Acquisitions

SF Client Impact Financial Systems (IFS) Acquired by iPipeline

Scale Finance Assists TrueLearn with Investment by LLR Partners

Scale Finance Assists Textum Weaving with Investment by Quad-C

Scale Finance Closes Debt Financing for Horizon Eye Care

Scale Finance Closes Acquisition of Horsepower Site Services by MCG Civil

More News…

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Media

Scale Finance Managing Director Dave Gilroy interviewed on WSIC Radio (local Fox affiliate)

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