How to Determine Markup and Be Competitive
One of the keys to running a successful business is to understand how to make a profit on the items you sell or the services you offer. Understanding how to mark up products to make a profit can make the difference between a successful business and one that fails. If your mark up is not high enough to cover costs, you will lose money. In addition, if your mark up sets your prices significantly higher than your competitors, customers may choose to go elsewhere for products or services.
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Instructions
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How to Determine Markup and Be Competitive
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Know the costs of running your business. Prices must cover costs or your business will not succeed. When determining costs, be sure to take into consideration property costs, loans, inventory, utilities, costs of financing and salaries. You also will need to factor in damaged merchandise and shipping problems that could affect your profits.
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Review your pricing often. Although you should always review your pricing policy when you introduce a new product line or decide to enter a new market, it is important to review your pricing policy periodically to be sure your mark up is covering costs and making a profit. Other factors that can affect your profit margin are changes in the economy and in your costs to manufacture goods or provide services.
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Know what your competitors are charging. One mistake that many business owners forget is to be aware of what their competitors are charging for the same goods and services. If your mark-up causes your prices to be significantly higher for the same services as your competitor, your customers may choose to purchase from them rather than from your company.
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Keep good records. By keeping good records regarding the cost of manufacturing your product, you will be more likely to set your prices so that you not only make a profit, but compete with others who are providing the same product or service.
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References
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