Yaneek Page | Pricing in hard currency

Q UESTION: My partner and I started business in 2018, and it was going good, but then came COVID. Unfortunately, the constant change in curfew hours and gathering limits affected us badly, and our weekly patronage has not been the same since January 2020. Another thing is that our expenses are escalating at a very fast rate. The long and short of it is we are not profitable at this price and level of customers.

I told my business partner we have no choice but to increase prices now, but she says we must plan longer term; that one price increase will not be enough, with electricity, raw materials and, especially, food prices going up each week. She wants us to price in US dollars instead so we will always have a cushion. Personally, I don’t like when businesses price in USD. I think raising prices as needed is better. What is your view? Also, any suggestions on how to manage so we can grow profits this year?

– Michaela

BUSINESSWISE: It would have been helpful for you to share specifics about the type of business you operate and parish in which you are located so I could have a better understanding of the industry dynamics and tailor my response accordingly.

For example, if you operated within or on the fringes of the tourism industry, that would likely support a strategic decision to price in US dollars given the diversity in your customer base and their likely acceptance of such pricing as standard.

Earlier this year the Statistical Institute of Jamaica reported that annual inflation for 2021 was 7.3 per cent, which exceeded the 4 to 6 per cent target range set by the Bank of Jamaica. Inflation for the month of December was driven largely by an increase in the cost of electricity, according to STATIN.

Unfortunately, given the rising cost of fuel since the start of 2022, high inflation in many parts of the world, including the United States, at 7 per cent for 2021, increased geo-political tensions, skyrocketing food and shipping costs, among other drivers, it is likely that prices will continue to rise in the near future. It Is not looking good for consumers and businesses, to put it mildly.

In the circumstances, my recommendation is that you and your partner need to first decide on a pricing policy for the business.

A pricing policy is a well-reasoned and strategic response to the recurring question of price change. It will be beneficial in planning for-profit growth and safeguarding profit margins in the future, which is the main question you needed answered. Another major advantage is that it will save your and your partner time, and unnecessary conflict, because you will have firm guidelines to manage pricing according to pre-defined internal and external price triggers.

I would also suggest that you seek the assistance of your accountant or financial consultant in preparing this protocol to ensure that the process is balanced and informed by expert opinion.

Jamaica is a relatively small market, and experienced local accountants will usually have great industry insights and inside information on the pricing policy, or lack thereof, of your competitors. While their duty of trust and confidence precludes them from disclosing other clients’ confidential pricing, they can share the parameters necessary to maintain competitiveness and profitability. That type of intelligence is priceless. They are also best positioned to guide the decision-making process around the currency in which you should quote prices.

Pricing checklist

You can both start preparing for that urgent meeting with your accountant by answering the following questions:

1. What is the desired minimum profit level the company should earn each year?

2. What is our desired return on equity in this business?

3. Who are our competitors, and how do they price within this industry?

4. What is our current and desired market position?

5. What are the internal and external factors that affect costs? What will they be by year end 2022?

6. Historically, what is the price elasticity of demand for our products/services?

7. Are we currently competing on price or value?

8. How profitable are each of our services?

9. Which services are most in demand, and what trends will impact this in the future?

10. Are we as diversified as we need to be in our services and customer base?

Generally speaking, any business that is unable to sustain price increases amid rising costs may not be a good business to be in for the future. This is a point to reflect on carefully. It may be your eureka moment in this enterprise. Therefore, I strongly believe that taking the time to answer the 10 preparatory questions I suggested, doing the research necessary, and gathering the data needed to support your decision-making process on this issue will lead to critical questions around your business model and achieving intentional future growth.

On a positive note, I hope you see this cross-road as the silver lining and opportunity that it truly could be for the governance and strategic management of the company and your journey as a successful business owner.

Good luck and one love!

- Yaneek Page is the programme lead for Market Entry USA, a certified trainer in entrepreneurship, and creator and executive producer of The Innovators and Let’s Make Peace TV series. yaneek.page@gmail.com