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Section 10.2 Price
Improve Return on Investment
Return on investment (ROI) is a common measure of profitability
for a business. It is based on the amount earned from the investment
in the business. One way of determining ROI is to divide net profit by
total assets. For example, if a business has a net profit of $50,000 and
assets of $150,000, the ROI is 33 percent.
net profit
= ROI
total assets
$50,000
= 33 percent
$150,000
Create an Image
Pricing may influence how customers perceive the business or the
product. The image of a business or product is how a customer perceives
it. High prices tend to create an image of high-end products. Low prices
tend to create an image of discount products. Be sure the image set by
the pricing matches the image outlined in the business plan.
Pricing Strategies
To stay in business, all companies, except for nonprofits, must
generate a profit. A pricing strategy to generate a profit is an important
part of the business plan. Choose a pricing strategy based on the
pricing objectives. There are many ways to set prices, but they all start
with knowing a product’s break-even point.
The break-even point is where sales equal expenses. It is often
expressed as the number of items needed to sell in order to recover
Looking for small
business counseling and
training close to home?
The SBA provides small
business counseling
and training through
a variety of programs
and resource partners
across the country.
Resources are available
both locally and online.
www.sba.gov
SBA Tips
Focus on Finance
Rule of 72
If you plan to open a business, it is never too early to
start getting your personal finances in order. Set a monthly
savings goal and stick to it. Another tool is the Rule of 72.
The Rule of 72 is a simple way to determine how long it
will take you to double your money. Simply divide 72 by the
interest rate you will earn. For example, perhaps you will need $10,000
to open your business. You have $5,000 now. How long would it take
to double your $5,000 if you invest it at a 4 percent interest rate? The
answer would be 13 years (72 ÷ 4 = 13).