Price2Profit

Pricing isn't all logic. People also buy at one price and not at another for psychological reasons - many of which they don't understand. Yet these psychology-based choices have been documented by pricing strategy experts in tests of hundreds of millions of consumers.  Here's how pricing psychology can work for you.

Have you ever found yourself getting frustrated at your customers?  How many times have you heard someone say: I could get so much more done if it weren't for all the customers If so you may not be charging enough that you love your customer.   Often times because we are so familiar and expert at the service we provide, we underestimate the value of the service, and the additional time we may need to spend educating the customer. We may charge what we would pay for the service, and then get frustrated when we have to slow down and explain our service to our customer.  The better solution is to build that time into our prices, so that we truly appreciate every customer, and are happy to provide exceptional service.

Recently on the radio there was a story where someone was closing their store and liquidating the inventory.  The interesting comment to me was that people were paying more during the liquidation sale than they were before they announced the liquidation. There are probably several factors involved that convinced people to buy, and figuring out how to emulate those can be benficial: A sense of urgency.  In a liquidation sale it is clearly a limited quantity, that when it's gone, it's gone. Presumption of value.  Many people may assume they are getting a great deal, if there is a sale on and the store couldn't make money at the regular price.  The customer may have left feeling like they got it at a steal. You probably don't want to go through a liquidation sale, but if there are other outside forces you can use, for example road construction around your business, the recent snow storms, or any other plausible excuse that means you have extra goods, your customers ma

Deciding how to set prices is something many business owners don't think too much about.  There are several ways that business owners typically set their price: They look at what everyone else in their industry does, and basically do the same.  Sometimes you can win by completely changing the model of how your price for your services.  For example lawyers typically charge by the hour.  However in  The Client Revolution: "How do you set your prices?"  Jay Shepherd describes his law practice that charges a fixed price based on client value.  The lesson is don't be afraid to think outside the norm. Another common mistake is that business owners charge based on what they think their service is worth, rather than what the client thinks it is worth.  Most often this will lead to undercharging as most people discount their own skills. In a related vein if you have done several similar projects before, and you can now do it faster and better, don't charge less because

There are three ways to raise profits : ·          you can increase volume (if you are profitable) ·          you can cut costs ·          or you can raise prices. By raising prices, you are effectively increasing your average transaction value – and, what is surprising to many people is that even a small difference in pricing can lead to a large gain in profit. The reason is simple.   Every dollar you gain by raising prices is pure profit.   It doesn’t cost you anything. For example, if your business operates at a 10 percent profit margin (say you earn 50,000 on 500,000 in sales), if you can raise prices even by 1 percent, that will boost your profits by 10 percent or an extra 5,000 a year.   Is charging $387 instead of $383 going to lose you any customers?  The answer is probably no, unless you are selling a pure commodity.

Welcome to the Price2Profit blog.  Here we'll be exploring pricing decisions and how they can impact the profitability of a business.  For many business owners there is no strategy behind pricing, and that can cost them dearly. Some of the topics we'll talk about in coming weeks are what should be the driver of price, why customers may be willing to pay more than you think, and how small changes in price can have a big impact on profit.