Name: Pricing For Profit
Rating: 3.5 (55 reviews)
Author: Peter Hill

What’s in it for me? Learn to price for profit.

Maybe you were taught that if you want to make your business grow, you should do everything but increase your prices. Perhaps you hear the voice of some business advisor echoing in your head: “Don’t raise it, for crying out loud, it’ll just scare your customers away. They’ll run right into the arms of your competition.”

But what if that weren’t true? What if it could in fact be a good idea to ask for more in return for your product or service?

In these blinks, the author briefly introduces you to the four common paths to growing your business, and then goes on to explain how and why bringing the price of your products up a notch could be just the right choice for you.

In these blinks, you’ll also discover

which price-setting methods to avoid;
why price tags are a good idea; and
why your focus should be on value.

A price raise is the simplest and most effective way to increase profits.

Most business owners are skeptical of the notion that raising prices will boost growth. But in fact, there are four common ways to grow your business and a price hike is a pretty good choice.

The four most popular strategies for growth are increasing your customer base, increasing the value or rate of transactions, achieving greater operational efficiency, and, finally, increasing your prices. So, while many businesspeople think that hiking prices will lead to fewer customers, that’s not quite the reality.

For instance, one survey that compared the reasons customers ceased purchasing a product found that 68 percent of those surveyed stopped because of what’s known as perceived indifference. This means that they felt they weren’t being cared about enough, as evidenced by things like poor customer service. Not just that, but only 10 percent said they stopped purchasing because of higher prices.

So, why wouldn’t you increase your prices when it’s such a simple way to grow?

After all, even making small price increases can significantly impact your company’s growth. For instance, investing in greater marketing efforts takes longer and costs more than a simple price raise. That’s because marketing investment might require lots of new print materials, staff or technological purchases.

On the other hand, just a minor price increase can mean huge benefits at a fraction of the cost. For example, say you’re selling 5,060 used phones a year at an average of $198.45 per phone. If you raise your price per phone by just 2 percent, or $3.969, your annual profit will rise from $1,004,157 to $1,024,240. That’s about $20,000 added profit!

That being said, there are some important considerations to make when setting a price, which is exactly what we’ll explore next.

Setting prices means understanding your product’s value to customers.

When it comes to setting prices, there are a variety of strategies, but one factor is key: value to the customer. The most common methods for pricing are flawed because they ignore this essential aspect.

For instance, cost plus pricing works by taking costs and adding a percentage to arrive at the selling price. However, this means that in reality there’s no connection between what it costs to produce something and what it sells for.

Customers decide what to buy based on the relationship of price to value.

How do you choose which TV to buy when you’re overwhelmed by the selection at your local electronics store? Well, most people make purchase decisions based on how much they value any given product.

For instance, take a quality pair of headphones that sell for $100. If you value them at $100 because of your affinity to the brand, you will consider the price fair. If you valued the same headphones at $130 you’d consider $100 a bargain, and if you valued them at $70 you probably wouldn’t buy them, opting instead for a cheaper model or one with features you value more.

Proper presentation of prices is essential to winning customers.

When you’re focused on setting the right prices it can be easy to forget how you’re going to present them, but this consideration is crucial. In fact, failing to think about how your prices are presented can even cost you customers.

That’s because if your prices aren’t clear, potential customers might not make a purchase. This makes sense when you consider the risks customers face when buying something for the first time. Doing so is essentially a leap in the dark. For this reason, it’s essential that your prices be clearly stated.

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