Pricing Strategies for Maximum Profitability

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:

What are you going to put into ACTION to maximize profitability in your business? Leave me a comment below.