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Is Your Pricing Sound?

Mar 18, 2014 | Marketing

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In more than 25 years of making pricing decisions and of observing others making pricing decisions, I have come to the conclusion that there is no single business decision that you can make more quickly, but which deserves more cautious consideration than the decision of what to charge for one’s goods and services.

As a business coach, it never ceases to amaze me how business owners and managers make such an important decision with so little rationale for their decisions and more shockingly – virtually no analysis of the impact of their decision.

What a business charges for its goods and services directly impacts how much revenue it has and more dramatically how much profit it generates. If you set your prices too low, you’ll go broke! Set your prices too high and you’ll also go broke! In the case of “too low” prices, you end up with lots of sales volume (at very low margin) but not enough gross profit to cover your fixed expenses. In the case of “too high” prices, even though you make a lot for each sale, you won’t have enough sales or revenue to generate a profit.

Consider a business that has a Gross Profit Margin of 40%.  A 10% decrease (or increase) in prices will decrease (or increase) Gross Profits by 25% (assuming no change in volume). Depending on the level of fixed expenses, net profit will change more dramatically.

But wait a minute; if you decrease prices won’t you make it up in volume? Maybe. Using the same a assumptions – 40 % Gross Margin and a 10% price decrease, since you are selling the units at a lower price and a 25% lower margin, you’d have to sell 35% more volume just to break even on your price discount!

So the next time you are thinking of changing your prices, do the math. Figure how much more (or less) you’ll need to sell compared to where you are today. If you’re selling online and can do testing, set up simple offer to test different price points. Once you determine the optimum price point, do the math and see if it will work given your fixed and variable costs and your breakeven.  If it doesn’t work, move on to another profit generating strategy.  If you need help determining your Gross Profit and want to learn how to raise prices without losing business, get in touch with me.

Learn more: ActionCoach Lisa Walker

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Don’t Get Bored with Your Marketing – Lather, Rinse, Repeat

Sep 11, 2013 | Marketing

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As humans, many of us get bored with doing the same thing day after day. We seek variety and change, so therefore we find new activities and adventures to keep us stimulated and refreshed. Let’s be honest, how many of us have bought a new vehicle mainly because we became tired of the old one? Yep, I see you raising your hand right now.

Here’s the problem when it comes to marketing strategies. If we are using a marketing strategy that is working, why would you change just because you ‘Got bored with it.’ Don’t laugh; I’ve heard that from business owners.

Let me give you a real life example. One of our clients, a landscaper, conducted a door hanger campaign whereby he placed door hangers on 500 homes in an upscale neighborhood. From that he got 5 leads, and two new customers that more than paid for the door hangers on the first job. He was thrilled. When I asked him what his marketing game plan was going forward, there was no mention of the door hangers. When I asked why, his response was “I wanted to try other strategies.” In essence, he got bored.

That is where “Lather, rinse, and repeat” come in. If a strategy works, keep doing it until it stops working. Your need for variety and change should NEVER interfere with making money in your business, so stop rushing after new and different strategies if the old ones still work great.

However, as a caveat, make sure that you are always testing and measuring your marketing campaign to make sure if they are still working.

There is nothing worse than a marketing campaign that once worked, but no longer does, but you are still paying for it. Make sure that your current marketing campaigns are profitable, and if they are, “Lather, rinse, and repeat.”