Setting the right profit goals can mean the difference between success and failure. Offering a price that the customer is happy with is important in earning business but you must be profitable to succeed as a business. Setting target profit margins is an important part of planning for success.
Know what the market will bear?
What will the market bear? This is the most important question to answer when determining pricing strategies. Without this knowledge your pricing can be too high and will cause you to lose business or your pricing can be too low causing you to sacrifice profit. The price must be fair for the customer and also for you. Some customers will value quality or safety over price and this is something you need to know about your customers to set pricing effectively
Determine the cost of providing your service?
What is the cost of providing the service? The cost of labor and parts are determined by market variables the same way that the price you can charge for your services are determined. Your competitors are shopping for the same employees and parts as you and the price you pay is largely determined by market conditions. But both employees and suppliers will consider it a good trade off to forgo short term monetary gains for stability, security and a positive work situation.
Set your margins correctly and everybody wins
Target profit margins affect all stakeholders in any business. Customers, employees, suppliers and business owners are all impacted by this decision. Have the correct information and set your target margins correctly and everybody wins.