The Federation of Small Businesses (FSB) has called on energy suppliers to treat SMEs more like domestic energy customers.
The Federation is pushing for greater transparency from the so-called ‘Big Six’ energy suppliers, simpler pricing and for SMEs to get the same protections as domestic energy customers.
The FSB’s recent ‘How’s Business?’ survey in the north-east found that 80% of those polled were worried about rises in business electricity and gas prices.
It also revealed that some small businesses feel that they have limited knowledge when it comes to the options their business has for energy, and very few feel that they understand energy contracts.
Ted Salmon, FSB North East Regional Chairman, commented: "In our most recent survey of members the biggest barrier for their business was increased energy and fuel costs.
"We want the energy companies to pass on the recently announced bill reductions to small and micro businesses. Given that small and micro businesses typically behave like domestic customers in the energy market they should be treated in an equal fashion.
"Alongside this the government should be doing more to help small and microbusinesses by ensuring there is greater transparency of the big six providers and introducing a more transparent pricing structure.
"Small and microbusinesses will help lead the recovery and re-balancing of the economy in the North East and by pushing through these changes will help more to survive, grow and prosper."
Do you agree with the FSB? How would you like to see the business energy market change for small businesses?
Setting your prices too high can drive your customers away, but charging too little could leave you in the red. Learn more about pricing strategies in small business and find out how to set the right price for your product or service.
Don't price yourself out of the market. Image by fsse8info via Flickr.
Setting the right prices for your product or service is essential to your business's success. To come up with appropriate numbers, you need to look at three factors:
1. Your costs.
2. Potential demand.
3. What your competitors charge.
I'll now look at each of those three factors in turn.
1. Your costs.
There are two basic kinds of costs you need to calculate - your variable costs and your fixed costs.
Variable cost is the price per unit of your product, and it takes into account factors like:
- the cost of manufacture,
- package and shipping,
- import duties,
- credit card fees,
- warehousing costs.
It's always a good idea to make sure your pricing covers your variable costs.
You will also want to take into account fixed costs, like:
- staff salaries,
- loan repayments,
- marketing costs.
You can check if your pricing is on track by multiplying your total price per unit by the number of units you estimate you can sell in a year. The figure you get should cover all fixed costs and variable costs and still leave you a reasonable amount of profit. Keep in mind that while your variable costs will often go down the more you sell, you should be conservative in your sales projections. This will lessen the risk that you won't be able to cover your costs.
2. Potential demand.
You need a good idea of how many sales you can expect in order to set the right price for your product or service. This is called a sales forecast or demand forecast, and there are a number of different methods you can follow to generate one, from making an educated guess, to more complex quantitative techniques which use historical sales data or data from test markets. What method you use will depend a lot on what stage your business is at; if you're just starting up, historical sales data won't be easy to get hold of!
As a starting point, you could make an educated guess and ask other people in your business to do the same to get a consensus. If you have a sales team, you could also ask them what they would realistically expect to sell each month. Another idea might be to do a customer survey to find out about their purchasing habits. You can find out more about sales forecasting on the BusinessLink website.
3. What your competitors charge.
It's essential to know what customers are willing to pay and you can get an idea by looking at competitors' rates. Carrying out market research or holding focus groups can also help you establish a reasonable price.
If your customers are likely to buy your product or service based mainly on price, looking at what your competitors are charging will help you to avoid pricing yourself out of the market.
Charging less than your competitors may look like a good way to gain market share, but there are some potential pitfalls. If your competitors are larger or better established, it is likely their costs per unit are lower than yours. It may be a better idea to develop other selling points. You should also keep in mind how you plan to position your product in the marketplace. There are many situations where you can charge more than the competition. For example:
- if you're selling a luxury product, pricing below the competition might make customers think your product isn't as good;
- you can charge more for a unique product that people can't get elsewhere;
- many customer will pay more for great customer service;
- if you have a brand that people know and trust you can charge a premium.
You might want to consider using price discrimination to maximise your sales - charging different prices to different customers. For example, you may offer a discount to students on a product that is usually too expensive for them, in the hope of reaching a wider market.
You should also think about price fluctuation in the market. For some small business, demand is seasonal. Raising your prices during peaks or offering off-season discounts may be a good pricing strategy if demand for your product changes significantly throughout the year.
Take a look our previous business skills post on PPC for small businesses and don't forget to come back next week to learn about tax and VAT.
The water industry in the UK was privatised 20 years ago, but when you compare it to the energy industry - which was only privatised just over a decade ago - the difference is clear to see.
Businesses can - and do - switch their energy supplier, but when it comes to water, it’s almost unheard of.
Given how central a reliable, affordable water supply is to our economy (it’s essential for industry, agriculture, energy production and more) it’s surprising that it’s often taken for granted, particularly given that climate change could mean water scarcity becomes an even bigger issue in the future.
It was against this backdrop that Defra released its Water for Life White Paper last month. It presents a vision for the future of the water sector, including some interesting proposals for businesses, which fall in two main areas: water abstraction and competition.
Businesses that take water from rivers, lakes, streams etc (more than more than 20 cubic metres a day) need an abstraction license. But Defra acknowledges that currently it can be difficult for businesses that want to start water abstratcion or increase their water abstraction to get a year-round reliable license.
The White Paper proposes that a better market in abstraction licenses would make it easier for businesses to access water in the volume and the location they need.
At the moment, only business customers in England that use 50m litres or more of water a year can switch their water or sewerage supplier under the ‘inset’, ‘water supply licensing’ or’ ‘new appointments and variations’ regimes - but it doesn’t happen often. In fact, only one business has switched supplier under the water supply licensing regime.
In Scotland, there’s an alternative regulatory regime, which is much more like the energy market. It has seen over 40% of businesses renegotiate the terms of their contract with their water supplier to get better prices and/or service, including discounts for paying by Direct Debit, aggregated purchasing, more information on water usage, and innovative schemes like rainwater harvesting. There have been estimated savings of £20m in three years, and apparently it makes businesses more water-efficient too. The report cited an example of one business with multiple sites which saved an impressive £80,000 a year just by aggregating the 4000 paper bills it used to receive into one e-bill.
To help get businesses switching, Defra has introduced new legislation which will lower the switching threshold to 5m litres - which will mean that the number of businesses which are eligible to switch water supplier will increase from 2,200 to 26,000. The White Paper says that further deregulation is on the way.
There are also proposals for ways to get new players to enter the market, so that business customers have a greater selection of water companies to choose from.
What do you think of these proposals? Would you ever consider switching your business’s water supplier? Let me know your thoughts and experiences in the comments.
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- Businesses buck the trend when it comes to smaller energy suppliers