How do you come up with your pricing? Is there a strategy behind it or do you just make it up as you go?
I always found it fascinating to see what people will pay for something. In my coffee and smoothie business, the more I raised the price, the more business I got – and the more profitable it was. In my done-for-you marketing services business, the more I raised the price, the better quality client I got, allowing me to better serve those committed to their marketing.
What a person will pay is all based on their perception of the value of the item. People buy what they WANT not what they NEED.
If you just want a car, you can buy something with 4 tires and a steering wheel. Yet people pay $50,000 $60,000 even over $100,000 for a car. Which do you think is more profitable to the seller – a car that sells for $20,000 or a car that sells for $80,000?
In general there’s not much difference between the 2 vehicles. The people buying the $80,000 vehicle do so because it has something they WANT. Maybe it’s a cool do-hickey like lightup drink holders. More likely, it’s the way that car makes them FEEL. To them, they’re getting a great deal because it’s something they want. Perception = Value.
Can you increase your prices to achieve maximum profitability?
YES! There is a psychology behind it that you need to know.
An item that is $8 can easily be sold for $10. Now, look at an item that is $11. It should just be $12.
When that item is priced at $12 it just looks better, doesn’t it? And you would still buy it, right?
Adding that dollar or two has a HUGE impact on your profit.
Do you know what your margins are? What your minimum markup needs to be to achieve maximum profitability? If not, grab a time on my calendar and let’s chat.
Many of my new clients fight me tooth and nail about raising their prices and then see how easy it is to mark up SOME items a little more. They become eager to do it as they see that impact is profound. For a business doing $500,000, increasing your markup from 50% to 55% can give you an additional $25,000. Did that get your attention?
Use this chart to maximize your profits and understand the psychology of pricing:
|ORIGINAL PRICE||PROFIT PRICING||NOTES|
|0 – $3.00||Use only the .50 or the .00||Don’t bother with the .25 or .75 – in most situations, it won’t make a difference.
|$4.00 – $5.00||$5.00||A customer considers a $4 item to really be a $5 item anyway.
|$6.00 – $8.00||$8.00||Use only when you have to – think hard and consider if the value of the item is really $10.|
|$9.00 – $10.00||$10.00||In their heads, a customer considers it a $10 item anyway.|
|$11.00 – $12.00||$12.00||An $11.00 looks like it should have been $10.|
|$13.00 – $15.00||$15.00||People like to think in 5’s. If it is $13 or $14, it might as well be $15.|
|$16.00 – $18.00||$18.00|
|$19.00 – $20.00||$20.00||As the prices get higher, I find that the extra dollar or two or three won’t stop a customer from buying it.|
|$21.00 – $22.00||$22.00||Keep the extra few dollars for yourself.|
|$23.00 – $25.00||$25||No discernible difference from the customers.|
|Increase by $5 up to $100|
|Above $100||You can primarily increase by $25.||Try it. Really look at an item. No one will buy an item at $140 that they wouldn’t buy at $150.
What are you going to put into ACTION to maximize profitability in your business? Leave me a comment below.
Stacey Riska, aka "Small Business Stacey" is a serial entrepreneur who is passionate about saving small - and not so small - businesses one marketing plan at a time. She helps business owners become a #SmallBizMarketingWiz by teaching them marketing strategies that get MORE: MORE leads, MORE customers/clients/patients, MORE sales, and MORE profit. Stacey's in-demand "Small Biz Marketing Success Coaching and Mastermind Program" is transforming the businesses - and lives - of those who want wealth, freedom, and market domination. Her highly acclaimed book "Small Business Marketing Made EZ" lays out the 6-simple-step plan to get your marketing into ACTION - literally and figuratively. Stacey is also the creator of Cups To Gallons, the place where independent coffee, smoothie, juice bar, ice cream, dessert and snack shop owners go to learn how get into lucrative catering so they stop selling by the cup and start selling by the gallon. In this program she teaches from experience, as it was the key strategy that transformed her coffee and smoothie business from being $500K in debt to a 7-figure profitable business. When not saving the small business world, she enjoys sipping red wine, eating chocolate (who doesn't!) and spending time with her amazing husband.
Please log in again. The login page will open in a new tab. After logging in you can close it and return to this page.