South Africa has an unenviable record of having the world’s highest failure rate for small businesses.
Data from the Quarter 3 2021 SME Index conducted by SME financier Business Partners Limited, shows failures of small enterprises were largely due to a lack of skills and limitations around marketing.
Lack of proper market research and astute financial planning, and a failure to price goods and services accurately to align with a business’s strategic objectives, was also flagged as a big problem.
Rene Botha, area manager at Business Partners, emphasises the following three tips for small businesses to follow when making decisions around pricing:
- Don’t build your competitiveness on pricing alone
Regardless of how niche your product or service is, large corporate competitors will have the budget and market influence to undercut your pricing. Therefore, relying on pricing alone as a competitive benchmark is very risky. In addition, setting your price too low can create the impression that your business is offering an inferior product to that of your competitors, and may result in consumers undervaluing your product or service.
- Understand the true cost of your product
All costs need to be factored in when determining the price of goods and services to avoid running at a loss. There are a few hidden costs to consider, including equipment depreciation, water and electricity, mileage, and licensing fees. These costs add up over time and their sum total can be deceptive. It’s important to weigh up the total cost of running a business in terms of time, labour and output cost – rather than just the monetary cost. This will allow you to determine your profit margin more accurately.
- Optimise the law of supply and demand
The capitalist system in which we live is governed primarily by the law of supply and demand. Supply and demand have a profound effect on pricing – the price of your goods or services should always reflect the market conditions to remain competitive. When supply is high and exceeds the demand for a good or service, the price usually drops, while prices will rise when demand exceeds supply.
Understanding this synergistic relationship is key to ensuring your pricing model will deliver decent profit margins – albeit tighter – even in a depressed market.
Time spent on market research to determine the need for your product or service in order to build a viable and sustainable business is never wasted.
Follow @SundayWorldZA on Twitter and @sundayworldza on Instagram, or like our Facebook Page, Sunday World, by clicking here for the latest breaking news in South Africa. To Subscribe to Sunday World, click here.
