What are the 4 main factors that influence a business pricing strategy?

Many businesses are finding it difficult to manage and optimise sales, revenue, and profit in the wake of the market developments of the previous year, including issues with the supply chain, client demand, and inflation. In light of this, it would be wise to consider how pricing strategies and decisions affect sales and revenue in the construction industry.

According to various financial companies, construction sector inflation has hit 9.5% up to June 2022 and 6% over the year to December. These increases have significantly impacted labour markets, supply chains, and interest rates.

In order to reduce margin loss and increase revenue and business growth, firms should consider changing their pricing approach.

Here are the 4 main factors that influence a business pricing strategy for construction companies.

What is a pricing strategy?

The procedures and methods companies employ to determine the prices for their goods and services are referred to as pricing strategies. Pricing Strategies are not the same as business models or strategies.

If pricing refers to the price you charge for your goods, then product pricing strategy refers to the process you use to decide what that price should be.

Types of pricing strategy include:

Value-based pricing
Cost plus pricing
Competition based
Dynamic pricing
Penetration pricing

Many businesses concentrate on acquisition to expand, however, studies have shown that minor price changes can increase or decrease revenue by 20–50%. Even still, less than 5% of businesses have departments to determine the optimum pricing.

In the corporate world, there is a chance lost to experience quick growth with little work.

The 4 main factors that influence pricing strategies

Before building a new pricing strategy, take a look at these key factors, which will help you determine your new and improved competitive pricing strategy.

Target customers

Be aware of what your customer preferences are when looking for your services. Do people prioritise getting the best deal or the lowest price? What role does price play in their choice to buy?

Consider your product offerings as well. Do your present clients purchase high-end or low-end goods and services? Using this information, you can decide whether your price is reasonable, what kind of service or inclusions you should be providing, and, last, whether you are marketing to the appropriate demographic.

To increase your company’s profitability, you might need to shift your target market and look at ways of getting leads for new clients.

Market research

Nowadays, online methods are preferred by both businesses and consumers. As price comparisons become more accessible, companies will have to rely on their distinctive service differentiators and other relationship-related factors to defend newly revealed pricing premiums.

Price-sensitive customers may request reductions to compete with other prospective providers who might or might not have comparable value propositions.

Market prices should serve as a guide for sellers as to what consumers are willing to pay for your particular value proposition. Additionally, it’s crucial to convey in your sales and marketing messages what distinguishes your business from its less-priced rivals.

Considerations for relationships that your clients would forego with a more affordable provider include market demand, service, dependability, trust, quality, availability, selection, timeliness, support, and convenience.

Labour

You must establish the base rate (hourly rate) and the labour burden to make an accurate labour cost estimate. The labour expenses were calculated using these two indicators together.

The base rate will be the total of the hourly rates for the project team if you know them.

These, however, do not accurately reflect the expenses of labour.

Other expenses include things like:

Taxes

Paid holiday

Insurance

Training expenses

Vehicle fleet and equipment.

The labour load pays for these numerous expenses. You may get the total labour rate per employee by multiplying the labour rate by the hourly rate for each employee. It would be beneficial to include inefficiencies in labour cost calculations, though. If you do not consider them, inefficiencies can be bewildering and result in ongoing cost overruns.

Product or service costs

When deciding on a price strategy, a construction company must consider all of the service input costs, such as the money spent on materials, labour, marketing strategy and legalities—likewise, the expenses are connected with distribution and promotion.

For instance, when introducing a new project, its promotion expenses may be very costly since investors or clients must be made aware of it. As a result, the price of a service can vary depending on where it is in the life cycle.

The breakeven point (BEP) is the point at which total costs and income are equal. A company’s revenue must exceed its entire costs for it to be profitable. The business loses money if total costs are higher than total revenue.

Total costs include both fixed costs and variable costs:

Fixed costs

A business must pay fixed costs, sometimes known as overhead charges, regardless of its level of output or sales. Fixed business expenses include rent, equipment lease payments, contracted advertising charges, and insurance.

Variable costs

Costs that vary according to a company’s level of production and sales are called variable costs. Variable expenses include, but are not limited to, labour, raw materials, and commissions on completed projects. Depending on how much you use, you may have variable charges like the petrol price for travel or your energy bills.

Looking for a business consultant to take your construction company to the next level?

When a construction company first starts to think about a new pricing strategy, it’s much more than just offering either a premium price or low prices; every company’s strategy will be different.

If you’re not sure the direction you want to take your business, a specialist construction business consultant can advise you on your pricing strategy and beyond.

By carefully selecting the right expert and actively participating in the consultation process, you could unlock the potential of your construction company and achieve excellent results.

So why not get in touch and see what we can do for you? Successful businesses start here!

Grab your free business strategy review today to find out how we can help you reach your goals.