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Pricing For Profit
How to Develop a Powerful Pricing Strategy for Your Business
- Read in 9 minutes
- Audio & text available
- Contains 5 key ideas
Pricing For Profit (2013) is a practical strategy guide for pricing. These blinks use real world business examples to paint a comprehensive picture of how to optimize your pricing and maximize your profits.
Key idea 1 of 5
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.