Welcome to this week’s Premier Business Operations newsletter…

Recently, I had a conversation with a longtime friend of mine, Annie, regarding a business that she was struggling with.  For many years, she has canned a variety of preserves, created various chutney and salsa recipes as well as crafted her own maple syrup.  Her kitchen is always filled with the most wonderful aromas and one can easily gain 10 pounds by merely stepping into her kitchen.  I haven’t a clue how she stays so thin.

For the past several years, Annie has sold much of her products at various farmers markets, but has always struggled with how little money people will typically want to pay for something at these events.  After all making these items is very time consuming and she always took the time to package them in colorful bottles or jars, with fancy homemade labels.

Annie’s basic struggle was that she wanted to see her business grow beyond its current modest income.  During our conversation, I asked her if she ever heard of the 4Ps.  She thought I was changing the subject and was talking about a music group, but what I was referring to was the 4Ps of product marketing:  product, price, placement and promotion.  Having an understanding of the 4Ps is critical toward building a successful business, no matter the industry or market.

For this newsletter edition, I’ll focus on the price or more accurately a key component of product pricing, the true cost of the product.  The pricing of a product is an area that many entrepreneurs struggle with, especially for a new product such as an IPad.  In Annie’s case, while her products were somewhat unique, they were not necessarily ground-breaking.  To begin the conversation of pricing, I asked Annie is she had an idea what her product costs were.  After a few “uhs and wells”, it was obvious to me that Annie really didn’t know what it cost for her to produce these products nor did she ever keep records for what she may have paid for jars, labels, fruits, etc.

So I left Annie with a homework assignment.  For each product that she was interested in selling, list out the materials involved (raw materials, jars, labels, ribbons, bows, etc.).  She thought we were done and closed her notebook, but she was in for a little surprise when I asked her to also list out “other costs.”  She wasn’t exactly sure what I meant by this, but the obvious one is labor.  Each of the products she produces is time consuming and those 12 hours boiling down maple tree sap to create syrup should not be ignored.  Then there are the other costs involved such as:  rental time for a commercial kitchen, which has become a requirement of many farmers markets and other retailers.  Other overhead costs that she never considered were farmers markets entrance fees, various taxes, transportation costs (of the raw products and finished goods), credit card merchant vendor fees, etc. 

So this week’s message from Premier Business Operations is make sure that you understand the true costs of your product or service.  Without this basic knowledge, it’s impossible to know the best places to trim costs when necessary or as we’ll see in a future edition of this newsletter how to price your product or service to be competitive.

To find out more about Premier Business Operations and how we can help your business grow, please visit our website at www.premier-business-operations.com or contact us at information@premier-business-operations.com

Wishing you and your family a Happy Thanksgiving.