12 May DOES YOUR PRICING STRUCTURE REFLECT VOLUME DISCOUNTS OR OTHER CIRCUMSTANCES THAT MIGHT AFFECT YOUR REVENUE/PROFITABILITY?
Financial Analysis and Pricing Structure for Marketing Product Off 2 Gran Grans.
Financial Analysis
As a marketer, you need to justify your marketing activities no matter if it’s a promotional campaign or development of a new product or service. You achieve this by first having a solid understanding of the financial impact of your marketing initiative and then presenting your financial analysis in a well-structured manner using industry acceptable framework.
In the financial analysis section, the first thing to show is sales (unit) and revenue ($) forecasts. Usually, this is done for a period of 3 to 5 years. You also need to show how much market share you are expected to get, and most importantly, illustrate its return on investment (ROI) using the Net Present Value (NPV) method. To help the management get a better idea about the feasibility of your marketing plan, a break-even (BE) analysis is often required. After all, nobody wants to invest in a new product or service that will only break even in 20 years’ time!
In all, your Financial Analysis should consist of the following:
1. Break-even analysis
2. NPV (net present value analysis)
3. Sensitivity analysis for good, normal and bad business scenarios
VI. Pricing Structure
Determine the price you will charge. For your service, determine pricing (this may be based on an “average” price per service rendered). You must:
• Demonstrate that your price allows reasonable profit in accordance with your profitability strategy (indicate this), allowing for your FC and VC that you determined in the preceding section.
• Share the pricing strategy that you have selected, in accordance with those provided by our text author. What is your rationale for the pricing strategy selected?
• Identify your total Year ONE Gross Revenues and projected Gross Profitability. Determine this for a three year window, based on reasonable projections. Does your pricing structure reflect volume discounts or other circumstances that might affect your revenue/profitability?
• If you are using a channel of distribution, describe the profitability approach are you taking with your channel members to ensure appropriate profit at their end so that they will want to promote your product?
• Weigh your pricing strategy with pricing currently offered by your competition. Consider how your proposed price fits into the target market and compares to the competition. Your pricing should allow for sufficient profitability to allow you to cover your essential fixed costs (FC) and variable costs (VC) on which you will want to reflect (but do not have to be listed).
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