Ultimately in business, everyone is looking to make a profit from their goods and services. You would be hard-pressed to find an executive who is not closely watching quarterly or even monthly sales.
Often these businesses struggle with an all too familiar theme: paying market price for goods and services. This affects startups and small-to-medium businesses, as well as the heavyweights who seem to control the market structure. No one wants to take too many risks that might impact their business in a negative light.
If the market price is too high for product supplies, your expenses will affect your ability to hire employees, reinvest in your company or make other strategic growth decisions. If the price is set too low, you are most likely receiving an inferior product or service. Simply put, paying too high of a ‘market price’ for goods and services is terrible for your business.
One of the keys to succeeding in your business is taking advantage of the information you have. You must understand the nature of market price and thrash the common misconceptions that persist. And if you do not feel adequately informed about a product or pricing, consult an expert such as Expense To Profit.
This article will explore what market price entails and how to navigate the myths surrounding it.
What is Market Price?
The market price is the cost for a service or product in the marketplace. The market price of office supplies, for instance, is the central point between supply and demand for that specific item.
Can market price over a specific product or service change from time to time? Yes! We will be exploring the factors that affect the market price of each good and service.
- Decrease in product availability. It is a simple phenomenon. A lot of people value what they cannot own. It is the same ball game in the commercial world. When a product is not available in the market, consumers will pay more to have it within their grasp. The rarer a product is, the higher its value. The market price automatically increases.
- Increase in product availability. The same law follows in this case, but this time in reverse. When a product or service is easily obtainable in the market, no company or business will pay higher for it. They would instead go in search of alternative products that may be cheaper. Thus, the market price for that item or service will be reduced.
- Uncontrollable occurrences. There are circumstances out of your control that might impact market prices, such as natural disasters, wars, global pandemics, etc. These events can hinder supplies to manufacturers, which will inflate the market price.
- Increase or decrease in employment. Where there is an increase in employment, people would afford to buy a higher-priced item. The reverse is the case when there is limited employment available.
Common Myths About Market Price
Below are some of the myths most businesses and entrepreneurs commonly see:
Myth 1: The Competition Knows Best
Many businesses join the bandwagon of other companies who automatically price their utilities and supplies to match their competition. An underlying problem persists. Many companies do not closely monitor how their competition came up with their pricing.
A closer understanding of the processes will show you how they got to their market price. After which, you can focus on providing much more than your rivals are offering. People love the value and will pay for it regardless of the price.
You need to differentiate your product through brand quality and standard.
Myth 2: Our Vendor Told Us We are Getting Best Price
We have a favorite phrase at Expense To Profit, “You don’t know what you don’t know.” Quite often, your vendor is overcharging you. Like yourself, they are a business trying to make a profit, and if you are willing to pay their price, they are more than happy to charge.
Additionally, this phrase can apply to the vendor too. The representative you speak to or have a relationship with may not even be aware of the full scope of pricing they can offer. When we discuss the potential for lower pricing, we often hear from vendor representatives, “those plans do not exist.” And because of the over 25,000 audits we have conducted, we work with a network of experts who help us reduce your costs without compromising the service or product you receive.
Myth 3: But We are Paying Cost Plus a Percentage (i.e., 15%)
While there is nothing necessarily wrong with paying cost plus a percentage to your vendor, how or what you pay can matter. What is meant by this is, do you and your vendor have a definition of cost? Do you have an actual agreement or contract which states this? Or is it simply a handshake or a promise?
This definition or lack thereof could be costing you thousands, and a simple review and redefining of” cost-plus” with your vendor could save you thousands.
Why are These Myths?
As a business owner, you ultimately know what is best for your company because you are an expert in what you do. But often, you are told what you are getting is your best option or pricing. And sometimes this may be true, but not always!
At Expense To Profit, we are experts in telling you whether or not the pricing or agreements you have in place are, in fact, the best you can get. And through the 25,000 audits we have conducted 89% of the time, we can get you better pricing without changing your vendors.
If you would like to discuss further how we may be able to you and your business, reach out to us.