- Your price ceiling is limited by the Perceived Differential Value of your offering. Customers determine this, but you can help them along the way.
- Your price floor is limited by your costs. If your floor and ceiling are the same height, you are going to get squished.
- Never limit yourself on price. This is the equivalent of you building a fake ceiling under your real ceiling because you hate having too much space.
- Different customers (and customer segments) have different views of your value. Tailor offerings and pricing policies to those segments. Don’t dilute your pricing power by using one product for everyone and then discounting it.
- Discounts are a strategic investment. Manage them appropriately.
- You are responsible for training your customers. If you train them to wait until the last day of the quarter, that’s what they’ll do. If you train them to expect justifiable price increases every year, they will. If you train them that they have to actually fulfill the conditions of an agreement to get the discount, they will.
- Align incentives for better results. If you compensate sales reps based on revenue, don’t be surprised if they optimize for revenue instead of profit (in other words, lower prices).
- Don’t apologize for your price. When you understand the value, you know it’s a good deal for the right kind of customer. Quality has a price. (If you don’t have quality, and you don’t offer value, that’s a more fundamental problem.) If you talk to customers about price and you have a problem with this, practice in front of the mirror.
- Unless you have a real, defensible cost advantage, don’t compete on price. (For SMB owners, your willingness to work long hours for low pay does not qualify.)
- Measure pricing performance on a daily, weekly, or monthly basis. The exact time frame depends on your business, but the idea is track performance while you can still take action, not just look in the rear-view mirror at the end of the quarter or year. Naturally, I think that pricing analytics software is great, but even if it’s just the executive team gathered around a table, that’s better than nothing. If you want to capture the 5, 10, or more percent of profit improvement possible through better pricing, you need a way to measure it.
10 Maxims for Improving Profit through Better Pricing
Posted by Reuben Swartz on | Featured
Great list. I think this might be going up on the wall in my office. I used number 5 and number 6 in meetings today when discussing a promotion (5) and a yearly price increase for a customer who only warranted a very small increase but we gave it anyway to reinforce the increase every year training.