III. Now read the text and check your answers to the statements from ex. II.

There are four ways you can increase your profits. You can cut your costs, you can sell more, you can change your product mix or you can increase your prices. Clearly your aim should be to set your prices - initially at the level which gives you your highest profits possible. Needless to say as with everything else to do with your business it is easier said than done. There is no clear-cut or agreed method of establishing a price for your product or service.

Some people use the level of costs as a way of fixing a price. This may seem a fair straightforward calculation, but it has drawbacks. For example, if your costs are very low, does it automatically mean that your prices should be low too? And even working out the cost of your product can be fraught with possible errors.

Other people argue that the price should be set by what the market can bear. But there are no quick and simple calculations which can tell you what this should be. Instead you have to establish the price by looking at the market you are in and the particular part of it your product appeals to. How does your product rate against others competing products in the same marketplace? There are also different strategies you can adopt depending on whether your product is a new or an old one. Often overriding all your plans can be the effect your competitors' pricing policy has on you.

It is probably more realistic to think in terms of a range of prices. The lowest price you should consider setting will be fixed by the cost. On the whole, you should not go below the price; if you have to, it would be better not to be in business at all. There are a couple of exceptions, of course, where temporarily it may make sense. The highest price will be the highest the market can bear without sales disappearing altogether. Between the two will be the price which will give the highest possible profits.

The right price for any business does not exist as a theoretical calculation. The only price which is right is the price which both the buyer will pay and the seller will accept. It isall down to negotiation. This may bear no relation to the prices calculated as a result of the value of the assets or the earnings potential which the business gives you. The first step is to reject all notions about need value. The second step is to throw out of the window all notions that the price given in the agent's details, for example, is the price you will have to pay. Negotiation is everything.

However, you should enter any negotiation with two prices in mind. If you are the buyer, thelower price will be the price you use to open the negotiations; the higher price is the maximum you will be willing to pay. You should not start negotiating unless you have a clear idea of this maximum price. If you are the seller, the lower price is the minimum you will accept for the business and the higher price, the one you adopt initially.

Nevertheless it is vital to have used a number of methods of arriving at a price. These can give you establishing lower and upper prices. You must have а point to work from. The accountant who is advising you should carry out these calculations for you, but you should know the basis for the figures.

Дата добавления: 2015-11-14