Guest Column: Figuring out pricing, sales and distribution
Guest Column by Dean Swanson
So, you are excited about starting your new business but let me ask you some real important questions to think through as you finalize your planning. Do you know how much to charge for our products or services? How are you going to sell to your customers? Online? In your physical location? How are you going to distribute your orders?
Many startup business owners make a common mistake: giving away their products or services for free (or almost free) to get their first clients. This devalues what you’re selling and makes it difficult to raise prices later.
As I have interacted with many new CEOs over the years, I have urged them to promote what makes you different and special — and worth that higher price. Don’t sell yourself short.
This is the ninth in a series of columns that provide several helpful business topics for the new small business. It is based on one of SCORE’s recent projects that was developed with the help of and in partnership with FedEx. This project is called “Startup Roadmap” and outlines every step in starting a business. A SCORE mentor may use this program to help you reach your goal smoothly.
In this column, I will suggest five steps to fine-tune your pricing and set up a distribution system for your product or service.
I consider that these steps are essential to a successful startup and I urge you to take advantage of the real-world knowledge a SCORE mentor possesses to help you with complex decisions. If you’re unsure about a decision, talk to your mentor to assess your options and get feedback. Your mentor can also refer you to other mentors with specific experience in your industry or on topics, such as sales strategies, logistics, and distribution channels.
Step 1: Set prices for your products and services. How should you price your products or services to achieve your financial goals? Price them too low, and you won’t make enough profit to stay in business. Price them too high, and you’ll have trouble selling anything.
Customers view your prices as a measure of your value. Higher prices often translate into more prestige and make your products or services more desirable. As a small business, you can’t offer prices as low as big companies that have economies of scale. You may have set some guidelines in your business plan for how you will price your product or service. Now that you’re deeper into the startup process and have more detailed information, revisit those ideas and see if they still make financial sense. Although I don’t have space in this column to give the details, here are six of the most common pricing methods you can use (Watch for future columns on this topic).
Step 2: Determine how you’ll sell online. Whether or not you have a physical location, selling online offers several advantages: It exposes your business to a wider audience. Instead of selling to people in your city or region, you can sell to customers all over the world. It can raise brand awareness of your brand. Even if you only sell a small part of your products or services online, it can attract attention to your company. Today, most consumers shop both online and offline. By making your products available online, you’ll attract a wider range of customers.
Step 3: Set up your online order processing and fulfillment. Whichever method you choose to sell online, there are several back-end steps involved in getting products to your online customers. You could manage these manually, but this approach will become inefficient as your business grows. Instead, decide how you want to handle each back-end step and choose the appropriate technology to create a system that can scale with your business. Be sure to plan the following:
• Order processing/inventory management
• Fulfillment (most common are in-house fulfillment, third-party fulfillment or drop shipping)
• Packaging and shipping
• Sales tax collection
Step 4: Develop your sales network. Whether you plan to hire salespeople for your business at some point or whether you will be the sole salesperson for your business, developing your own sales network is vital to success. No one else will be as passionate about your business as you are, so even if you do you have salespeople to help you, you need to create your own personal sales network to succeed.
Step 5: Set up your distribution systems. In your business plan, you laid out how you’ll distribute your products. Now, it’s time to look for specific distributors you can target to work with. This will give you a network for getting your goods into customers’ hands. Be sure to set up agreements and payment terms as well as shipping and mailing systems.
With your sales network and distributor relationships underway, you’re almost ready to open for business. In the next column, I will have suggestions on deciding where to locate your business and stake your claim on a location.
Dean Swanson is a volunteer certified SCORE mentor and former SCORE chapter chairman and district director.