Price Setting And The Implication to Your Revenues
#Business_Fundamentals
We covered the qualitative aspect of revenues yesterday; and today we will delve into the quantitative aspect of it.
To generate more revenues over time, your prices must be what your customers are willing and able to pay.
In economics, we say that forces of demand and supply determine what we refer to as an equilibrium price i.e the middle ground where you the supplier and your customer arrive at after each compromising on their preferred prices.
Ideally, the customer wants the lowest price while you want to sell at the highest price possible so as to increase your profit margins (we shall deal with key business ratios each entrepreneur must have on their finger tips soon).
But sometime there are more customers than the available supply in the market (this can be as a result of intentional hoarding which is unethical, inefficiencies in the value chain such as poor infrastructure which breaks linkages to markets or it could be as a result of genuine low production or low supply of service providers); hence you can increase your prices and still sell all your stock or be fully booked for your services.
In other times, the market is flooded with supply and there are fewer buyers; and at such times you want to dispose what you have at whatever price since the customer has a higher bargaining power.
From the foregoing, its obvious you are most likely not a monopoly to set your own prices, hence a lot of other players in your market are affecting your price setting processes. In economics, we say you are operating in a perfect competition market system (ideally but not realistically due to informational asymmetry on the side of the consumer - topic for another day).
Long story short, you are in a market system with many players and how they set their prices affects how you set your prices too. The ability and willingness of your customers to pay count as well; hence complicating the process further.
But it does not always have to be complicated; if your value proposition is compelling enough and you are within your customer wallet range, you can always be rewarded for offering a premium solution!
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@RiroJeremy