Price2Profit

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.