What is the appropriate selling point?
The appropriate selling point is defined as the selling price, that once the cost to produce (cost of goods or cost of sales) and a percentage of the overhead expenses (selling, general and administration) are deducted, there is enough money left over (net profit) for the shareholders and reinvestment into the company.
It is important to note that this may or not be the same as the price that the market will bear. When these two targets are not financially in alignment, changes must be made to the cost structure, business model or both.
If competition or recessionary pressures force the company to sell at a discount yet the cost to produce remain intact--the company losses profitability. In other words, the price required to satisfy the market (reduction in price) will not support company profitability requirements. Therefore, the company must either realign its cost or figure out how to sell at a higher price point.
Managers often believe this problem can be solved by selling in volume. This is usually not the case due to the service nature of most companies today and the inability to gain true economies in scale.
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Categories: Selling Strategies
Tags: selling price business simply put lori williams small business finance
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