How can you change your pricing so that the rise in GST is passed onto your customers and does not become a cost to your business?
Someone will have to pay the increased GST. It will be up to your business to make up the shortfall if you don’t charge your customers the correct amount. This could clearly be a big ‘cost’ for SMEs.
So what can you do?
One option (the simplest) is to display only the GST exclusive price. In New Zealand the GST rules stipulate that you can display a price excluding GST if you state that it ‘excludes GST’. If you are dealing directly with other GST registered businesses as your customers, and they can claim back the GST, this may be the simplest option. This, however, might negatively impact your retail customers purchasing decisions.
Option two is to wear the GST rise and drop your net margin. Let’s say your retail price is $9.99. If you wear the GST, your net price would be $8.69, and you would lose 2%. If you think your volume will be adversely affected by increasing your GST inclusive price you might like to keep the same price and forgo 2% on your net sale.
Option three is to mix up your pricing and see if your product or service can make the next natural price jump up over the psychological barrier of $10.00 for example to a price like $10.75, which to your customers will feel like a discount from $10.99. Lots of big brands and retailers use this strategy.
For detailed analysis, consult your advisors.
To enquire about making painless GST changes in your accounting system, click here
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