Filipino women entrepreneurs have been historically excluded from economic development and empowerment. Now, they experience multiple barriers in accessing finance and capital — from limited productive opportunities to discriminatory financial bureaucratic processes (e.g., the requirement of spouse’s signature in loan applications). This section goes through gender and financial literacy concepts, alternative financing instruments with flexible repayment systems, business proposal and loan application tips, and recommendable gender-responsive financial institutions or programs.

Cost Vs Price Vs Value

For each business operating currently in the world, the game boils down to two major things: how much cost the business is incurring and how much price the business is charging from their customers to recover that cost.  

The price you charge for your product or service is one of the most important business decisions you make. Setting a price that is too high or too low will – at best – limit your business growth. At worst, it could cause serious problems for your sales and cash flow. If you’re starting a business, carefully consider your pricing strategy before you start. Established businesses can improve their profitability through regular pricing reviews.

When setting your prices you must make sure that the price and sales levels you set will allow your business to be profitable. You must also take note of where your product or service stands when compared with your competition.

THE DIFFERENCE BETWEEN COST AND VALUE

Knowing the difference between cost and value can increase profitability:

• the cost of your product or service is the amount you spend to produce it
• the price is your financial reward for providing the product or service
• the value is what your customer believes the product or service is worth to them

For example, the cost for a plumber to fix a burst pipe at a customer’s home may be Php100 for travel, materials costing Php400 and an hour’s labour at Php 1,500. However, the value of the service to the customer – who may have water leaking all over their house – is far greater than the Php2,000 cost, so the plumber may decide to charge a total of Php 3000.

Pricing should be in line with the value of the benefits that your business provides for its customers, while also bearing in mind the prices your competitors charge.

To maximise your profitability, find out:

• what benefits your customers gain from using your product or service
• the criteria your customers use for buying decisions – for example, speed of delivery, convenience or reliability
• what value your customers place on receiving the benefits you provide
• Wherever possible, set prices that reflect the value you provide – not just the cost.
• Covering fixed and variable costs
• Every business needs to cover its costs in order to make a profit. Working out your costs accurately is an essential part of working out your pricing.

Divide your costs under two headings:

• fixed costs are those that are always there, regardless of how much or how little you sell, for example rent, salaries and business rates
• variable costs are those that rise as your sales increase, such as additional raw materials, extra labour and transport

When you set a price, it must be higher than the variable cost of producing your product or service. Each sale will then make a contribution towards covering your fixed costs – and making profits.

It’s important to find out what your competitors offer and what they charge. If you phone your rivals and ask them for a quote, you can use this information as a framework.

It’s probably unwise to set your prices too much higher or lower without a good reason. If you price too low, you will just be throwing away profit. If you price too high, you will lose customers, unless you can offer them something they can’t get elsewhere.

The perception of your product or service is also important. In many markets, a high price contributes to the perception of your product as being of premium value. This might encourage customers to buy from you – or it might deter price-conscious customers.

It can be useful to charge different prices to different customers, e.g. to customers who purchase repeatedly, or buy add-on or related products, as a thank you for their loyalty. Bear in mind that customers who are expensive to satisfy will be less profitable, unless you charge them higher prices. One-off sales may cost you more than repeat business.

You can also use pricing tactics to attract customers. See the section below on different pricing tactics.

Whatever prices you set, check that they cover your costs and can deliver a profit. See the page in this guide on covering fixed and variable costs.

DIFFERENT PRICING TACTICS

Different tactics can help you attract more customers and maximise profits.

Discounting

Offering specially-reduced prices can be a powerful tool. This could be a clearance discount to sell old stock, a discount for making multiple purchases of the same or similar products, or you could offer bulk discounts to encourage larger orders. You should be able to make these more profitable through lower costs.

But be careful. If you discount too much, customers may question your full-rate pricing or see you as a cheap option, making it difficult to charge full-rate prices in the future.

Odd value pricing

Using the retailer’s tactic of selling products for $9.99 instead of $10 can be useful if price is an essential part of customers’ buying decisions. Some customers perceive odd value prices like this as being more attractive.

Loss leader

This involves selling a product at a low or even loss-making price. Although you may not make a profit selling this product, you could attract customers who will also buy other, more profitable products.

Skimming

If you have a unique product or service, you can sell it at a high price. This is known as skimming – but you need to be sure that what you are selling is unique. Otherwise you may just price yourself out of the market if there is credible competition.

Penetration

This is the opposite of skimming – starting at a low price and gaining market share before competitors catch up with you. Once you have a loyal customer base, you should be able to find ways to raise prices later

Raising or lowering prices

There will be times when you need to change your prices. But before you do, you should analyse the impact on your profitability of any proposed price change.

There are two key questions you will need to answer:

What effect will the price change have on the volume of sales?

What will the effect be on the profit per sale?

Increasing prices

Increasing prices can improve your profitability even though your sales volume may drop.

If you are increasing your prices, always explain to your customers why you are doing it. You can use the price change as an opportunity to re-emphasise the benefits you offer. A good explanation can also strengthen your relationship with a customer.

There are also ways that you can hide price increases. For example, you might:

• introduce new, higher-priced products or services and make older, cheaper ones obsolete
• lower the specification – and your costs – while maintaining the same price
• But be aware that hiding price increases can risk adverse reactions from customers if they realise what you are doing.

Reducing prices

You should never take the decision to lower prices lightly. Low prices often go hand-in-hand with poor-quality service – is this the image you want to create for your business?

Concentrate on building profits rather than cutting prices to build up sales. In most circumstances, your customers decide to buy from you because of the benefits you offer, along with your price. It is rare for the decision to be made based solely on the price.

Cost price is how much it costs you to make each product. It is one of the first and most important steps in successful businesses’ strategies for pricing new products.

WORKSHOP

Cost price formula: how to calculate cost price (tradegecko.com)

Wholesale Price Calculator | QuickBooks Commerce (tradegecko.com)

The cost price formula

How to calculate cost price? Simply add together the labor cost, the components cost, the tools cost, the marketing costs and the overhead cost.

To help you understand how this works, we’ve created a step-by-step guide on how to calculate the cost price of a product.

1. Detail all of your costs

The first step to calculating appropriate prices for your wholesale products is to detail all of your costs, including Cost of Goods Sold (COGS) and overhead costs.

Your COGS represents how much you spend to acquire the products that you’ll resell. This includes costs such as:

• Acquisition of products from your vendors/suppliers
• Freight & handling cost 
• COGS – Cost of Goods SoldOverhead costs, also called indirect costs, exist regardless of the volume of products sold. They include fixed or variable expenses, such as:
• Customer care services
• Rent for warehouse space
• Utility bills
• Insurance
• Equipment and software used to run your business, such as computers and inventory management software

This list is by no means exhaustive, so think about the specific expenses your business incurs. For example, you might also want to consider the cost of inventory shrinkage due to theft or damage.

Examples of How to Calculate Cost-Plus Pricing:

Markup is the difference between a product’s cost and its selling price. Generally, depending on the industry, it is expressed as a percentage of cost.

Margin (also called Gross Profit) = Selling price – Cost of goods sold.

Margin and Markup move in tandem. For example, a 40% markup always equals a 28.6% profit margin, 50% markup always equals a 33% margin.

Using Markup

You have a business of creating wooden furniture chairs. You determined the following costs:

Wood costs: 5000
Labor and materials: 2000
Total Cost: 7000
Desired Markup: 40%

Your selling price would be computed as: 7000 X 140% = Php 9,800

In the example above, gross profit is Php 9,800 – Php 7000 = Php 2,800.

Expressed as percentage: Margin is Gross Profit ÷ Selling price = .286 = 28.6%.

Using Margin

Using the example above, let’s say we want the selling price to give us a 40% margin.

Using simple algebra:

We’d sell it for Php 11,666.66. Our gross profit is Php 11,666.66 – 7000 = Php 4666.66
As you can see, the calculation for markup is a little easier to perform than the calculation using margin percentage.

But once you know what profit margin you want to achieve, you can always use the same markup calculation.

Management and Labor Capacities

As part of growing one’s business, women entrepreneurs also need to take note of their businesses’ management and labor capacities. Starting from knowing about ways of properly managing their business, women entrepreneurs will also be guided towards eventually enhancing business practices with the latest business development technology or processes. This section will discuss the business model canvas, business registration processes, laws and policies protecting MSMEs, and human capital development methods such as mentoring programs, online discussions, and table discussions.

Business Registration

One might still need to be convinced to register with the BIR and it may help to know what benefits a business can gain from BIR registration? Here’s a list of the most important ones. 

Skip Fines—and Possible Jail Time

Running a business is already challenging enough as it is without the BIR nipping at your heels to add to the list of things that you need to worry about. You can certainly try to be a tax evader, but that doesn’t mean you won’t be facing consequences for making such a disreputable choice. In fact, operating an unregistered business is an offense that carries financial penalties and a prison sentence. 

To be exact, the BIR notes that the penalty will be “fine of not less than PHP 5,000 but not more than PHP 20,000, and imprisonment of not less than 6 months but not more than 2 years.” The actual fine will depend on where your business has been operating, namely PHP 20,000 if your business is in the city, PHP 10,000 if in a 1st class municipality, PHP 5,000 if in a 2nd class municipality, and PHP 2,000 if in a 3rd class municipality.

While you might think that filing for a BIR Certificate of Registration is a waste of time and effort, doing it as early as possible can actually take a load off your shoulders in the long run.

• Access to Essential Financial Services

Being BIR registered is also important if you want to take advantage of any number of business-critical financial services. For instance, you’ll certainly need your BIR Certificate of Registration (Form 2303) and tax identification number if you want to open a corporate bank account for your business. You’ll also need to be BIR registered if you intend to take out a bank loan or if you want to file applications for other types of financing. First Circle, for example, will only be able to underwrite your business for invoice financing and purchase order financing if it is registered with government agencies like the BIR.

• Enjoy a Better Reputation among Customers and Investors

Customers are likely to see your business as a more reputable and trustworthy enterprise if it is registered with government agencies like the BIR. This is true whether you’re operating a business-to-business (B2B) enterprise or a business-to-consumer (B2C) enterprise, but more so if you’re serving other businesses. After all, other enterprises are likely only going to be willing to enter into transactions that involve huge sums of money if you can offer official receipts, which, in turn, you can only acquire if you’re already registered with the BIR.

• More Opportunities for Growth

Since customers will be more inclined to transact with your business if it is BIR-registered and if they see it as a legitimate enterprise that can provide official documents, then it stands to reason that you can also leverage your status in order to land more contracts and more lucrative projects. You’ll even be able to explore other opportunities in sectors or markets that you haven’t tapped previously. For instance, you can submit bids for government contracts, or you can also consider exporting your products to clients based overseas.

• More Confidence Promoting Your Business

Because you won’t be hiding under a veil of secrecy for fear of being discovered and charged by the government for operating an unlicensed business, you’ll certainly have more confidence marketing your business. This can give you a tremendous advantage in terms of increasing the visibility and reach of your company.

• Contribute to the Country through your Taxes

The taxes that businesses like yours pay the government are essential in the maintenance of the whole gamut of government services offered in the country. They are used to fund schools, hospitals, museums, libraries, government offices, uniformed services, and many others. 

Notwithstanding the current state of governance in the Philippines, taxes remain as the primary source of indispensable capital for these services.

HOW TO REGISTER AS A SINGLE PROPRIETOR

As a sole owner, you’ll need to process your business registration at the Department of Trade and Industry (DTI). You can do a quick online check on the availability of your proposed business name/s through the Philippine Business Registry website. Business Name Registration – BNRS Portal (dti.gov.ph)

The following DTI registration fees apply depending on the territorial scope of your business:

• Barangay – ₱200
• City/Municipality – ₱500
• Regional – ₱1,000
• National – ₱2,000

According to DTI, if you want to expand the territorial scope of your business, you may register under the same business name “provided that it will be registered with a different city and will cover the new business location.” Your business name is valid for five years from the date it was registered.

Partnerships or Corporations

You may register your business at the Securities and Exchange Commission (SEC).

Verify the availability of your business name on the SEC website, and once verified, you may already reserve the company name online. Confirmation of your company name should be done at any SEC office within four (4) days, or it will be forfeited.

Fill out the online application forms via SEC i-Register, and print it for submission to the SEC office. 

SEC – Login

Here are the basic SEC requirements for registering a corporation or partnership:

• Cover Sheet for Registration
• Reservation Payment Confirmation
• Articles of Incorporation (AI)
• By-laws (BL)

More documents will be required specific to your type of business:

• Partnership
• Domestic Partnership
• Foreign Owned Partnership
• Corporation
• Domestic Stock Corporation
• Domestic Non-Stock Corporation
• Foreign Owned Corporation
• Foreign Corporation

The SEC document requirements are available for download on their website. Upon completion of online registration, name reservation, and/or download of partnership forms, you may pay online or at the SEC cashier.

For those who want to apply manually, you may verify and reserve your proposed name at any of the SEC offices. You will be guided for the next steps to obtain the articles of partnership forms, and the Articles of Incorporation and By-laws.

Getting a Barangay Clearance and Mayor’s Permit for your business

Depending where you will set up your shop, you’ll first need to go to your own barangay to obtain a barangay clearance. This will be a requirement in applying for a mayor’s business permit. The requirements and processes may vary in different local offices.

These are the main documents for Barangay Clearance application:

• DTI or SEC certificates – bring original and photocopies
• Business location sketch/map
• Contract of lease if you rent the place of business, or land title/tax declaration if you own the place of business.
• Duly filled out barangay clearance application form

Depending on the type of business, other documents may be required, such as below examples:

• National Food Authority (NFA) License for rice/corn and wheat dealers
• Bureau of Food and Drug Administration (BFAD) and Department of Health (DOH) for drugstores, bakeries, or other food and health related businesses
• The same documents are requested for mayor’s permit, with the addition of mayor’s business permit application form, certificate of occupancy in the building or unit of your business, and a Liability Insurance, if applicable.

HOW TO REGISTER YOUR BUSINESS WITH THE BIR

To comply with the BIR, you can first download and complete the following forms from the BIR website before going to the BIR office:

• BIR FORM 1901 – Application Form for Single Proprietors
• BIR FORM 1903 – Application Form for Partnerships and Corporations

Other forms to be submitted for all types of businesses:

• BIR FORM 0605 – Payment Form
• BIR FORM 2000 – for Documentary Stamp Tax

Other BIR business registration document requirements:

• DTI or SEC certificates. Bring original and photo copies
• Mayor’s Permit
• Contract of Lease if you rent the place of business, or Land Title/Tax Declaration if you own the place of business.
• Business location map
• Along with the issuance of your Taxpayer Identification Number (TIN), you should also be given the “ask for receipt” sign to be posted on your business establishment.