Stars, Dogs, Cows & Question Marks: Your Product Mix Strategy​

Stars, Dogs, Cows & Question Marks: Your Product Mix Strategy


Your company’s product mix is the list of everything that the company sells. We often look at the product mix from a contribution rate or percent of each type of product that a company offers. The product mix strategy is the method by which you make a decision about how much of which products to sell, and which ones you may want to get rid of.

Boston Consulting Group developed a matrix – known as the Growth Share Matrix – which is used to categorize a company’s portfolio of products (or business units)  as a collection, and divide them based on performance.

Performance is denoted into four quadrants based on growth potential and market share. The categories are Stars, Question Marks, Cash Cows and Dogs. 

Stars are the products you want to keep. These are the best products you’ve got; the ones you are likely to put the greatest share of your marketing budget behind, and the one that you will get the best return from as you continue to develop and refine the product according to customer demands.  Not only is their current return excellent, they have continued high growth potential.

Cash Cows are offerings that you also want to keep. They have high market share, but low growth potential. These are the ones which will typically have a high profit margin and a rather predictable degree of stability.  They are like comfort foods for your markets; even if there are other products out there, your offering is one they find appealing.  You will continue to get money out of these products that you can use to invest into this offering and other areas of the business.

Dogs are your offerings that you should really consider getting rid of.  With both low market share and low growth potential, you will likely find that investing dollars into other offerings will yield a greater return. Keep in mind that over time, many of your product offerings will eventually end up in this category, which is why it is essential to continue to innovate.

The last category – Question Marks – also known as “Problem Children” – are those that have low market share but high growth potential. It is likely a great product that no one knows about.  This may be a result of under-capitalizing their product marketing or business development, difficulty in reaching their target markets, or they could be products that have a very specific use for a limited audience (or other factors). 

Regardless of which quadrant your products lie in, it will be important to watch them because they can move into one of the other three quadrants, which will change your investment strategy.  If you look at a typical product lifecycle, and apply this model to each of your products, you will have a better idea of how to treat each one and what to expect from their performance.

Source: https://lukasweber425.wordpress.com/the-secrets-of-marketing/product-life-cycle-stages-and-strategies/

WistBooks Financial Management. Wise + Strategies to take your business financials further.(TM) 

WistBooks provides integrated Bookkeeping, Advisory, and Financial Management services that leverage financial data to help small businesses execute a winning strategy. Through Quickbooks Online cloud accounting, financial dashboards and regular online advisory sessions, we support business owners and leadership in maximizing their financial decisions to maintain and support company growth.

We are offering all new clients a 10% discount on any service for the first year. Remember to mention WistGift to receive your discount.

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Key Factors When Pricing Services

6 Key Factors to Consider When Pricing Services

 

Is your service company profitable? How profitable? How do you know?

Pricing for service-based businesses is often elusive for many business owners. If you look at the price for consulting or marketing, for example, you will likely find pricing and pricing strategies all over the place. If they are based on hourly fees, some firms will focus on a low price strategy, others will be more “middle of the pack” – basing their pricing on average market rates, and others present themselves as premium service offerings. If they are project-based, they may price based on estimated hours or even based on the future value of the service.

Regardless of the pricing strategy, in order for a company to be profitable, it is essential for the company to have a method for creating it.  Below are some key principles to consider when establishing pricing for your service business.

  1. Profitability: Profitability is always going to be the most important element of your pricing strategy. If you are working on a cost-plus basis, where your pricing strategy is based on covering all of your costs – including a markup for operations, make sure to add in profit margin. Take a look at this article on business profit by thebalance.com
  1. Cover ALL of the labor: While most business owners are conscious about covering the costs of their staff, sometimes we as business leaders don’t cover the cost of our labor. You can use a cost calculator like this one provided by Tsheets by QuickBooks.
  1. Operating markup: while many firms will opt to have some type of operating markup, it is important to have a method of determining what that number should be. If you look at your operating costs for the month versus your total revenue for the month and find that you’ve been doing a 10% markup but your operations actually cost your 15%, you’ll need to make an adjustment. Your operating expenses are eating into your profit!
  1. Competitors: Find the firms that are most closely aligned with what you do – both direct and indirect competitors and learn what they are charging. Sometimes you may find that they are charging a lot more than you are and you are leaving money on the table! Keep in mind that the unique value that you provide may be something that your customers would be willing to pay extra for.  Understand the benefits and disadvantages to this approach.
  1. Market: Your market has a mental expectation associated with what you will charge. Simply stated, if you charge more than they expect, it will be difficult to close them. If you charge less, then they will likely be suspicious of your abilities. Side note: the alignment between your market’s impression of your company and the price they will be willing to pay has everything to do with how the company is positioned.  Positioning is part of what influences a customer to buy from you.
  1. Industry: Your industry may influence how you are able to charge for your services. For example, if you are in construction doing bid work, you may find that certain customers will want to see line-by-line what they are paying for, including any markup that you plan to include. Which means that if you don’t provide that information, you won’t be included in the bid opportunity.

Your company’s pricing strategy requires an investment in time to complete, but it should result in a pricing model that will allow your company to sustain.  Having a process or methodology in place will help for when the market shifts.  Not fully understanding your pricing strategy could lead to under or over pricing and make it very difficult for you to maintain solvency.

  1. When pricing services, it is important to ensure you have considered the following factors to ensure profitability with each transaction.
  2. Regardless of the pricing strategy, in order for a company to be profitable, it is essential for the company to have a method for creating it.
  3. Profitability is always going to be the most important element of your pricing strategy.
  4. Find the firms that are most closely aligned with what you do – both direct and indirect competitors and learn what they are charging.
  5. Your company’s pricing strategy requires an investment in time to complete, but it should result in a pricing model that will allow your company to sustain

 

WistBooks Financial Management. Wise + Strategies to take your business financials further.(TM) 

WistBooks provides integrated Bookkeeping, Advisory, and Financial Management services that leverage financial data to help small businesses execute a winning strategy. Through Quickbooks Online cloud accounting, financial dashboards and regular online advisory sessions, we support business owners and leadership in maximizing their financial decisions to maintain and support company growth.

From now through June 2020, we are offering all new clients a 10% discount on any service for the first year. Remember to mention WistGift to receive your discount.

We would love to hear from you.  Please share your thoughts and comments below.