How Your Pricing May Be Sabotaging Your Profits! The Secret to Amp Up Profits in Any Economy

May 29, 2010 by  Filed under: Sales 

Whether you’re a service provider or product purveyor, chances are that you are undercharging for what you have to offer. Now, you may be fully aware of this but don’t know what to do about it. Or you may not even know that you could and should be getting paid more for what you are providing.

The truth is, because most small business owners and entrepreneurs undervalue themselves, they undervalue, under-price, and under-promote their service or product offering. Consequently, they frequently struggle to attract enough customers and clients to keep their doors open and, when they do, charge less than they could and should. The inevitable downward spiral that results all too often ends in business failure.

Want to take your profits to the next level? The key to proper pricing is not a secret:

1. Proper pricing is a critical component of marketing and it’s based on common sense. Unfortunately, common sense is not common!

2. Proper pricing is based on building in the perceived value to your clients and customers. It’s NOT about pricing based on what your competition is offering. Interested? Read on…

Assume for each of these scenarios that you have a fixed overhead of $5,000/month and your Cost of Goods Sold (COGS) is $50.

Scenario I (The Good) Your product’s price is $100. That means your profit is $50/unit and- since your overhead is $5,000-you need to sell 100 units to break even. So far, so good.

Scenario II (The Bad) Say your business traffic slowed down and you decided to reduce prices by 20% to stimulate sales. Your sale price is now $80. COGS is still $50. So, your profit goes down to $30/unit. No surprise.

But here’s the thing: You now need to sell 167 units (instead of 100 units) just to break even! A 20% price reduction results in the need to sell 67% more units. Ouch!

Scenario III (The Beautiful) If you raise your prices by 10%, your new sale price is $110. COGS is still $50 so your profit is $60. Now you only need to sell 83 units to break even. Thus, a 10% price increase results in a decrease by almost 17% in the number of units you need to sell! REMEMBER: Piling on the value is the real formula for working smarter, not harder.

Here it is in chart form:

I

II

III

Full price

20% discount

10% increase

PRICE

$100

$80

$110

COGS

$50

$50

$50

PROFIT

$50

$30

$60

Break-Even

100

167

83

% change in B/E units

66.7%

-16.7%

The real bottom line: Rather than reducing prices, pile on the value instead and you’ll get your asking price. And, after you’ve done this for a while, add even more value and you can raise your prices again. It’s one thing to talk about reducing and raising prices. It’s another thing to see the impact in real numbers. And, it’s yet another matter to add in value to your offering.

To learn the best ways to use this information in your business, I invite you to get your complimentary Freedom Acceleration Training Pack at http://www.Freedompreneur.com/freedom_pack

George Huang of Freedompreneur Coaching and Consulting is a business acceleration specialist. Known for creating an annualized six-figure income in 73 days, George is an expert on client attraction, client conversion, and paid introductory sessions. He works with owners of businesses of all sizes who desire more freedom and fulfillment.

Article Source:

http://EzineArticles.com/?expert=George_C._Huang,_M.D.

George C. Huang, M.D. - EzineArticles Expert Author

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