sales and invoicing

You've finally registered and launched your business and are well on your way to fulfilling your dreams. But now the fun (difficult) part starts. It is time to sell your wonderful product or service. 

But hang on, have you thought about how much you are charging for your product or service? Well, let's talk about it for a little bit.

Pricing Your Product

The price of your product or services can influence the number of sales you make and the amount of profit you earn on each transaction.  Your sales prices need to always be higher than the costs incurred to get the product or service to your customer. That means you need to know the cost of the goods sold (also known as Cost of Sales). 

Cost of goods sold ("COGS"), tells you what your business spends to deliver a product or service to your customer. It’s treated differently to general non-direct costs like salaries, wages or the rent. COGS are expenses that occur only when a service or good is provided, and goes up or down as sales go up or down.

Example: Cost of goods = cost of raw materials + manufacturing costs + transport + storage + distribution costs.

Example: Cost of service = sales commission + cost of contractors + travel costs + equipment rental.

Some of the above costs may not apply as they are based on each specific business. 

Pricing Strategies

Below are the pricing strategies that can be applied to the product or service.

Market-based pricing - this is pricing based on what is the general price being charged in the market that the business is operating in. The pricing is largely based on supply and demand. Check out what your competitors are charging for their products to determine whether you are going to charge a higher price (if your product/service is a premium product than the competition), match the price, or charge slightly lower if you want to be competitive. It is usually better to charge the same price as your competition, rather than a charge lower price as this is usually not sustainable, unless you are the lowest-cost producer of the product/service in the market.

Cost-plus pricing - this is when you simply add a standard mark-up (or profit margin) to the cost of the product.  Check if there are industry-standard mark-ups. Ensure that the final pricing is still competitive in relation to the pricing charged by your competitors.

Launching price strategy -  New products or companies sometimes use temporary pricing strategies to try and grow their customer base. They could offer Sweetener deals where they offer introductory discounts off the normal price for a limited period of time, Penetration Pricing (offering lower pricing in order to attract new customers quickly), or Price Skimming, where the initial pricing is deliberately made higher and is thereafter dropped.

The profitability of a company is largely dependent on the careful balance between the profit margin (i.e. revenue less cost of sales) and the sales volumes of the product. Both of these are affected by the price charged.

Make use of accountants and bookkeepers to assist you with the financial data so as to ensure that your pricing strategy optimises the company's profitability. Often, they understand industry norms of pricing and margins and would be able to inform you if the profit margins  are too low.

Ok, now that we know how much you are going to charge for your fabulous product, let's start selling.

The Sales Process

The sales process is the method your company follows to sell your product or service to customers. It involves a series of steps, from initial contact with a lead to the final sale.   Creating a sales process will not only improve your business’s bottom line, but also help your employees succeed individually. 

Stages of the Sales Process

• Finding customers -  The first step is to look for customers, which requires some research. Understand who your ideal customer is, and how you can get to them or to get their attention.
• Make contact with the customer - Determine the best way to contact the prospective customers (e.g., email, social media, telephone, etc.). Make sure you are prepared when you contact your prospective customer Introduce yourself and work on building trust. 
• Qualify your prospective customers - Determine if the customer still qualifies to be a customer of your product. Qualifying the customer involves confirming whether they meet the criteria of a good customer. If they are not a good fit, tell the prospective customer why. 
• Nurture your prospective customer -  Once you have qualified the customer, demonstrate the relevance of your product or service to them. This involves answering questions about your unique product or service offer, the benefits you provide, and the problems you solve.
• Make the offer - Use the information you have collected to this point to present the prospect with your best possible offer. Craft the offer to address their challenges, budget and goals. The customer may resist the offer either with a rejection or a counteroffer. Be creative and have some flexibility about how you address their concern.  Ask what else the prospective customer requires to make a decision. Listen carefully to their feedback and address their concern. After some negotiations, it is ok to walk away from the sale if the customer refuses to take your offer while their counteroffer is not profitable for you. 
• Close the deal -  Once you have overcome all objections, and you have come to an agreement with the customer, you can close the deal to make the sale.  Ask a direct question or make a direct statement  (e.g., “Would you like to sign the deal now?”). Close the deal and deliver on the sale as soon as possible after the final "Yes" by the customer. This is key.

You have done the work and sold the product or have delivered the service, and now it’s time to get paid. For that to happen you need to issue an invoice.

Invoicing for goods sold or services rendered

Invoices are most commonly sent as a document (Microsoft Word or Google Docs), a spreadsheet, a PDF, or via specialised invoicing software. Whichever way you go, use a template and include details like your business name, bank details and payment terms so you don’t have to keep rewriting them on every invoice. Write the due date of the payment on the invoice. The shorter the due date, the sooner you will get paid.

If you do not already have an invoicing template, try this free invoice template by Xero.

Small businesses, just like large businesses, need to have credit policies in place that provide guidelines for determining which customers or clients will be extended credit and on what terms. Do not extend credit automatically to new customers. Only extend credit to those customers you have high confidence in that they will be able to settle their debt. In any event, sooner or later, you will need to have a formal credit granting policy that governs who can get credit from you and how to do you determine whether they are creditworthy or not.

If you are worried that you won't get paid for that sale or service, depending on the type and the price (value) of the product or service, it may be sensible to ask for a deposit or retainer upfront.  The beauty of a partial payment is that it ensures that you get paid something even if the customer defaults on the rest of the invoice.  

Important things to remember to ensure that you get paid and on time by the customer:

• Personalise your invoice with your business logo, it shows the customer that you are a professional business and should be treated as such.
• When payment is due to be paid, call to remind them that payment is due and tell them how to pay.
• For business-to-business invoices, check that you have used the legal name of the business, which may be different from the trading name.
• Before making and sending an invoice, check that your customer is expecting one. If your invoice comes out of nowhere, they may be slow to pay it. Explain to them when you will be sending it so that they will know when to expect it. After sending the invoice, follow up to check that they have received it.
• The easier you make it for customers to pay, the faster you’ll get paid. So, choose the best method that is the least inconvenient for the customer. The days of just accepting cash only are over. We live in a digital world now, and the methods of accepting card payments have become affordable and cost-effective.  
• List all the details of the product or service in a way that makes sense to the customer on the invoice. Any confusion may create a payment delay. 
• Make sure the invoice is sent directly to the person who makes payment to avoid the invoice getting lost in someone else’s inbox. 
• If you've set your payment terms out clearly on your invoice and the client has ignored them, you’re entitled to charge interest in the form of overdue fees. However, make sure you clearly include the details of your late fee policy on your invoice in the payment terms section. In order to preserve a good relationship with your customer, be willing to negotiate these with them.
• It is important that you’re always polite with clients when sending invoices and following up on past-due bills. Include a pleasant “please” and “thank you” on your invoice and in your accompanying email to show your gratitude and leave a good impression. Being calm and polite with clients when their payment is overdue can ensure you maintain a good relationship.
• Unfortunately, even when you use all of these proactive ways to get paid consistently, you will still have some overdue accounts. When all of your other tactics don't work, it's time to send the account to collections. Use an accredited collections agency to do the legal work for you. Many small legal firms provide this service at affordable rates.

You need to understand the significance of pricing strategy, sales, invoicing, and collections in your small business. Developing a sound pricing strategy can ensure your profitability, while effective sales tactics can help increase your revenue and customer loyalty. Paying close attention to your invoicing and collections processes is also crucial to ensure timely payment and maintain positive cash flow.

By prioritising these areas and regularly reviewing and optimising your pricing and sales strategies, as well as your invoicing and collections processes, you can position yourself for long-term success in today's competitive marketplace. Remember, a successful small business requires a comprehensive approach that encompasses not only product or service quality but also the essential business functions that keep it running smoothly.

Now, go out there and WIN!!