Basic Pricing

Basic Pricing is the pricing you initially create for your business based on traditional conditions as for e.g. operational costs, forecasted revenue and desired margins. This also includes internal and external components as for e.g. operations ability, market competition, needs, expectations, fiscal regulations and policy decisions.

Correct Basic Pricing gives you a basic pricing model with clear frameworks and guidelines for the business, which can often be used by various departments to support their part of the over all process. The Basic Pricing is always based on the company’s overall strategy.

Basic Pricing Provides

  • Basic Pricing Template for your identified target market.
  • Ensures expected margins and cost control per forecasted unit.
  • Is part of over all quality assurance.
  • A tool for decision making.
  • Basis for the later planned Strategic Pricing and Business Models

Create Basic Pricing / Working process

Request / create necessary supporting information:

* Marketing plan, (handling plan, go to market plan).
* Market analysis & Defined Target Market (competition, segments and target groups, other related factors).
* Desired / forecasted revenue, (Initially based on share holder demands).
* Estimated forecasted market share

This information is usually available based on company’s earlier strategy planning. It is not the amount of information that is important, it is the correctness of the same and make it a rule to always verify such information.

1. Create a revenue forecast, (Se below points A-E).
2. Calculate margin, gross revenue. (Se below point F-G).

A. Make a total assessment of your product / solution in relation to competition.
B. Calculate a fictive price based on the point, (A). Often easiest to start with schablons per product main areas.
C. Calculate an realistic revenue forecast, based on main product areas.
D. Calculate the number of units sold based on the above, (C), and adjust the number to a realistic level.
E. Adjust prices in detail per product area and adjust the revenue forecast totals if necessary.
F. Add the estimated gross margin / or gross margin based on previous years financial reports / or accordingly to your company’s way of measure desired margin, (total operational cost – forecasted revenue per product area)
G. Calculate, adjust and secure that expected revenue and gross margin are in line with the expected.

A basic method securing your results

The example above only deals with basic principles and guidelines that must be adapted to the different conditions various operations represents. However, there are basic guidelines that are crucial to all businesses and even if you have a position as for e.g. a Director of Sales and Marketing at a larger Tier 1 business these are principles you need to confirm in order to be sure of providing the correct end result.

“Although prices are so crucial to the success of a company, the majority of the senior management mistakenly assume that the prices available are accurate with out questions.”

Prices may also be changed depending on a variety of circumstances. If it’s a newly started company with an aggressive growth strategy, it will obviously affect the prices, compared to, for example, an established company with strong customer base. That’s what it means by following the company’s overall strategy plan.

An effort to create the right prices in a medium or large scale company is often a process that includes several departments and strategic areas. The process may sometimes take up to several weeks based on complexity and scope. Securing the right Basic Price model is crucial for any business, and has to be conducted on continuous basis.

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