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Keeping Your Pricing In Line With Your Costs

(November 2008) posted on Mon Nov 17, 2008

Don't get caught off guard by unexpected cost hikes. Learn how to carefully track your direct and indirect costs and then adjust your pricing so that your business remains profitable and healthy.

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By Mike Ukena

Have you raised your prices more than once in the past year? If you haven’t, you are probably not making as much money as you should be. In fact, you are very likely losing money. For those of you who have not been paying very close attention, prices for everything are going crazy. As usual, it started with fuel costs and it is now trickling down to everything else.

Unfortunately, everything we do in business is somehow linked to the price of oil. When oil goes up, business costs can change rapidly. When oil makes one of its infrequent drops, business costs do not drop nearly as fast as they went up. The key for your business is that you have to be very cognizant of the increases in your costs so you do not get upside down in your pricing structure.

A good example of how to do it right is to look at the oil industry itself. Look at how fast and smoothly oil companies adjust to cost changes in their raw materials. Within days of news reports of the big jump in crude oil prices, we were already experiencing the result at the pump. When crude goes down we do get a drop at the pump, but at a much slower rate.

What prompted me to write this article was a discussion I had with a screen printer this summer. I reminded him of the increases that were working their way through the plastisol market and that it was probable that he would also see those kinds of increases in other facets of his business. His response was that he was having difficulty adapting as his customers would not accept a price increase on his work. At that point, I asked how he planned to stay in business if he was losing money on every order he did?

Customers always want the work for as low a price as they can get. It is a fact of life. At the same time, a business cannot survive if it does not make money. The printer in the previous example would actually be better off to not even print orders at the price he felt he was stuck working for. He would lose less money staying home and watching television.


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