Pricing for profit was the concept for the second held let's talk meeting. This concept was broken down into two areas and discussed exhaustively by the two guest speakers who presented the topic of the meeting.
The purpose for this meeting was;
To understand the cost of doing business
To learn how to price your products
To understand the importance of registering your business
Introductory remarks from Lydia the host
Lydia - Owner of LYNAconcepts
The host as usual hailed at everyone and reread the meeting guidelines. She hinted at thee challenges many bakers face while pricing and trying to make profit then lastly informed everyone about the format to use when sending in questions as well as the appropriate time to do so.
The Cost of Doing Business
Ojwang Victor from EBC consultants
The first guest speaker talked about the four main elements regarding the cost of doing business and they included;
- Elements of costs,
- Margins and Mark ups,
- Break even point & analysis
The detailed information on each of the elements as presented below.
Elements of Costs
There are two elements of costs namely variable costs and fixed costs;
Variable costs are costs that you have to incur in order to generate revenue. It is something you have to do so as to convert it into a product to sell. For example sugar, flour, eggs among others in order to come up with a product. In other words you have to itemise them in order to come up with the cost of the product while keeping in mind the cost of production too. To do this you need to know all the little details like the prices of the ingredients needed to come up with the product. After you have come up with the total cost incurred while producing a product, you have to add in the Margin or Mark up.
Fixed cost are costs incurred whether you are working or not. For example, rent, electricity, water, man power among others. Every business person or owner must be prepared to always incur fixed costs.
Margins and Mark up
These two can be used to come up with the price for your products. Margins refer to the difference between your sales and your cost of sales. Another name for Margin is gross profit.
Mark ups can be a percentage or a fixed amount in the currency you are using. You need to be cautious when determining a mark up for example you should be familiar with the trend in the industry as well as the pricing. An overly ambitious mark up will lead you to losses. It is the mark up element that helps you finance your fixed cost.
Break Even Point and Analysis
Break even point refers to that point where your revenue equals your cost. This means you have not made a loss and you have not paid healvily. He emphasized calculations and they are illustrated in this illustration.
(Images: Illustration or the calculation)
Under taxation we are mainly discussing domestic tax for example VAT, PAYE, income tax among others and so every business owner should register their business since it not only gives you more opportunities but you get to price your products handsomely too. This is why it is good to familiarize yourself with Uganda Reveny Authority so as to avoid future prosecutions and losses as well as other inconveniences. And, always remember that you can not grow when you are under cover, you need to claim your position in the business world.'
With these, he concluded his speech and the host intorduced us to the second guest speaker.
Pricing for Profit
Kyomukama Pius CEO of Cake n Cakey
Price is both the money one charges for a service or product and what the consumer is willing to give to receive the service or product.
Note: When one asks about the cost of a service or good, one is really asking how much one needs to give up to receive it. For a business to increase value it can either increase the perceived benefit or reduce the perceived cost.
These are of the detailed elements of price;
Viewing prices from the customer's perspective.
This helps to define value creating which is a competitive advantage. This is because a client is only willing to pay so much because of the value you are giving them.
Ensure your products are of value.
The value of your products should be equivalent to the price. An exaggerated price for a product with no value will eventually lead a business to an early demise.
Understand that price and cost are different.
Price is what you pay to obtain a service or good while cost is what the business pays to make the product. Prices of your products can lead to a firm surivival of the business or it's collapse.
Pricing your products well requires enough research.
This is because you need to understand your costs, know other bakers' prices as well as Consider the trending prices on the market.
Make sure your prices are not out of range on the current market
Know your target
It is good to establish your clients or the category of people you are making a product for because it saves you unnecessary competition.
Understand your clients
You have identified your clients or your target market, understand them, get to know their preferences and what they like and then make it for them to buy.
The biggest challenge under pricing is time
That is so because very many people concentrate on only the costs they incurred while buying the ingredients and they do not take time to calculate their time value. He presented a Basic Cake price formula which can help include time on the equation:
Labour (hours of estimated work) × hourly rate + cost of ingredients + overhead cost
This helps include the time which most people ignore and which is also a crucial ingredient.
These are some of the different types of pricing
Premium Pricing, penetration pricing, economy pricing, scheming pricing, pyschological pricing, neutral pricing, promotional pricing among others.
Note: If a Client does not agree with your pricing, then they are not your target market. Be patient till you get your target clients.
Avoid under pricing
Underpricing is when one charges their products less yet they are of value. Underpricing because of customers is risky since you might end up in demise. Attach a serious business mindset as well as producing products of value so as to deter underpricing
How to know your underpricing?
You can know you are underpricing when everyone is happy with your price then you are seriously underpricing.
Other aspects of pricing that should be taken seriously are;
Ingredients and supply
This should be taken seriously while calculating the pricing.
He said every bakery should have a minimum price for example one should not make cakes for 1milliom as well as 100k cakes... There should be a minimum so as to narrow down your clientele.
The Q&A Section
1. How do you incorporate the investments made in a business such as equipment and tools into the cost of production? Asked by Rajab
Mr. Ojwang: Equipment and tools are more like capital so they can not be factored in your pricing modules.
2. How can Ivon let her clients know she is increasing the price even with the value of her products remaining the same? Asked by Ivon
Mr. Ojwang: When your products have value, you will never wrong so you just need to twist something little and let your clients know of the increased prices.
Mr. Pius: If the value of the product is good then no problem.
3. How do taxes factor into pricing and income tax? Asked by Emma.
Mr. Ojwang: You can only charge a VAT when you are registered with Uganda Revenue Authority.
4. What is the best contingency plan for factors such as environmental factors and other factors affecting the business for example currently curfew? Asked by Sonia Angola
Mr. Ojwang: It depends on your business but if it is a cake business, then reach out to your customers send them a complementary cake to help keep you in their mind till this period is done.
The host: Nabuyanga Lydia from Lynaconcepts
Guest speakers: Mr. Ojwang Victor from EBC consultants
Mr. Kyomukama Pius CEO of Cake n cakey
Pricing is the ultimate guide to a successful business. It should be given enough consideration while making business.
Please comment below and let us know what you think is best regarding this topic