A few months ago, I talked about pricing with a friend who runs a web design firm. Adapted below is a list of points I shared with him based on the specific challenges he faced. I’ve since sent the list to other business leaders looking to make quick strides in profitability through improved pricing. I’ll cover each point in a future blog post in more detail.
If you take these tips to heart and begin practicing them, you will make more money. Really.
- Price Increases & Price “Leverage:” Pricing has a much larger impact on profit than equal changes in costs and sales volume. Understanding this powerful leverage can give you the confidence to execute risk-mitigated price increases and avoid costly discounts.
- Price Sensitivity & Segmentation: Customers are not equally price sensitive to all products. All customers are not equally price sensitive on a given product. Even the same customer buying the same product may not be equally price sensitive from one order to the next.
- Value-Based Pricing: If you charge less than your customers are willing to pay based on the value they derive from your products, you are letting your customers keep your money in their pockets.
- Who is Most Price Sensitive? The seller is very often the most price sensitive person in the selling conversation, not the buyer.
(This list applies to both goods and services, broadly called “products” above.)