Pragmatic Pricing #1
Pricing is Grading, but not de-grading !!!
from Pragmatic Pricing.com 7/13 enhanced by Peter/CXO Wiz4biz
What grade would you give your product? Your marketing? Your price is that grade. As a company you invest time & resources developing a product or service to create real value. You then invest more resources in marketing & sales to make sure that value is communicated to your customers. When it is all over, you have to price it. You have to decide how much value your customers receive from your efforts.
Pricing is just like grading your company on how well you created & communicated value. If you did well, then you price higher. If not, you price lower. Just like a professor is the final arbiter of my grade, your potential customers are the final arbiters of your prices. They will let you know if you price too high, because they won’t purchase from you (and that hurts). When you think of pricing like self-grading, the quality of product development and the effectiveness of your marketing suddenly take on a new perspective. Do your best to earn an “A+” and your company will “survive & thrive”.
Pricing is the most Powerful Lever
If there isn’t a magic price that creates a ton of value, then why bother? The answer is that pricing is the most powerful lever you have to increase your profitability.
Let’s go through an Analysis. A typical well-run Subway franchise may take in about $365,000 per year in gross sales. However, by the time the food is purchased, royalties are covered, labor, rent and other overhead are paid, the owner may walk away with$60,000 of profit. If, just through pragmatic pricing, the owner is able to raise prices an average of by 5% without decreasing volume, then the revenue will go up by 18,250. Since the expenses don’t go up, the owner pocketed that all and now earns $78,250. This is 30% more income for the Subway owner. That 5% increase in price generated a 30% increase in profit. That’s leverage !!!
Subway is a very tightly-run franchise and there may not be an opportunity to increase prices at all, but what about your business? Most businesses have opportunities to increast pricing, you just need to look for them.
Action: How much revenue does your business take in? How much profit is generated by that revenue?
[ Action continued + the Magic Price, Creating Value and more in Premium Content ]