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Casual Articles - Higher Prices Lead To Higher Profits - Part 2
During the holiday season, and in business generally, we can hear the pursuit of more: more money, more customers, more profits, more food, more clothing, more friends, more time, more more.When is more, enough? Do you have enough air to breathe and food to eat? Enough space to live in and business to keep you busy for a while?If you are reading this now, you’ve surely got enough in your life to give yourself an occasional rest, a break, a moment out of the persistent quest for more…a chance to really enjoy what you already have, which most of the time is quite enough.This is not a call to
One last common pricing structure is front-end or loss-leader pricing. Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things.
If your goal is to drive your competitors out of business, and you have deep pockets to sustain an unprofitable price war, this can work brilliantly. Many big box retailers, including Staples and Home Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and both raised prices when their markets thinned out.
If you have a profitable and expensive product or service, an effective approach is to sell something that is cheap. For instance, if you have a high-end seminar, a lo
Probably the biggest problem with being a small business owner is right there in that phrase. Small.Small means few or no employees. Small means you end up doing most, if not all, business tasks yourself.Whether or not you're any good at them.But even if you ARE perfectly capable at completing those tasks, is doing them really a wise use of your time? (Just because you CAN do something, doesn't necessarily mean you SHOULD.)As a business owner, you should be focused on the big things – a vision for your business, putting together a plan to reach that vision, developing new products, s
(http://www.paullemberg.com/higher-part1.html)
By now you may be asking yourself, "What should my prices be?"
Before you go start changing prices, you need to clarify a core part of your overall positioning. You need a pricing perspective.
Do you want to be a low priced provider, or would you rather sell the premium product? There are good reasons for being a low priced seller. Just as Michael Dell - that's where he started, although he certainly isn't there now. Or look at Costco, or Amazon. If you look to these models for inspiration, make sure you have three things: a firm grasp on your margins, deep pockets, and the ability to do lots of volume. Without all of these three, you will surely go broke.
Where are you personally more comfortable? If you sell at the high end of your price spectrum, you are likely to attract higher end clients, and it would help to be comfortable in that rarefied atmosphere. On the other hand, you may feel better on the low end. It's a choice and you have to make it.
What will attract the type of clients or customers you want? Your price is a signal to your potential clients telling them who you are in the marketplace. And if your goal is to raise the quality of your clientele, the easiest way to do so is increase your prices.
Do you want a low service, volume business, or would you prefer fewer, select clients and give them "high-touch"? High-volume, low-touch businesses can be very profitable, and can generally scale more easily, but require more planning. Low volume, high-touch (select always means high-touch) businesses, may be easier to build and require less overhead. If you are thinking of a lifestyle business, go the latter route.
Do you want a quick in-and-out transactional business, or would you rather develop long-term, nurturing client relationships? If you want to build something easy to scale and perhaps sell down the road, high-volume, low touch may fill the bill. If you are developing a life style business to carry you into old age, or a "professional" business with a strong public image, think long-term and nurturing. Higher prices usually go hand-in-hand.
Develop a pricing perspective that fits your goals. Your decision will go a long way to determine who you do business with and how you do it, and will also effect how you can dispose of your business. There are no clear guides to the right choice. It's more a matter of preference and positioning.
But perspective is not the only element to pricing. By itself it will tell you how to price (high, low, middle of the road), but not the exact price itself. Before I share with you how to do that, let's examine a few common approaches to pricing.
As nuts as this may sound, lots of people price to pay the bills. No kidding. I've seen this advice in more than one article for professional service companies. "How much money do you want to earn? Divide that by how many hours you have to sell..." And so on. (By the way, cost-plus pricing is just as crazy.)
Price to time. This is what most services people do. They set their prices by the hour, or by the day. The biggest problem is this makes it way too easy for prospects to compare your price. It also puts them in control of your time if they do buy.
Price to competition. This is the most common form of pricing, and is the core of all prices based on market research. And it makes sense if your offer is comparable to that of your competitors.
One last common pricing structure is front-end or loss-leader pricing. Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things.
If your goal is to drive your competitors out of business, and you have deep pockets to sustain an unprofitable price war, this can work brilliantly. Many big box retailers, including Staples and Home Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and both raised prices when their markets thinned out.
If you have a profitable and expensive product or service, an effective approach is to sell something that is cheap. For instance, if you have a high-end seminar, a low
Too many professionals struggle with an unhealthy balance of work and play, as their careers take over the majority of their time and leave them with little energy to devote to other priorities such as family, friends, and personal well-being.Is there a way to find happiness through a successful career that will allow you to still enjoy all aspects of your life? Believe it or not, there is. You, too, can join the ranks of the lifestyle entrepreneurs.A lifestyle entrepreneur is somebody who goes into business – not primarily for financial rewards – but for lifestyle reasons. Instead of money, the m
Where are you personally more comfortable? If you sell at the high end of your price spectrum, you are likely to attract higher end clients, and it would help to be comfortable in that rarefied atmosphere. On the other hand, you may feel better on the low end. It's a choice and you have to make it.
What will attract the type of clients or customers you want? Your price is a signal to your potential clients telling them who you are in the marketplace. And if your goal is to raise the quality of your clientele, the easiest way to do so is increase your prices.
Do you want a low service, volume business, or would you prefer fewer, select clients and give them "high-touch"? High-volume, low-touch businesses can be very profitable, and can generally scale more easily, but require more planning. Low volume, high-touch (select always means high-touch) businesses, may be easier to build and require less overhead. If you are thinking of a lifestyle business, go the latter route.
Do you want a quick in-and-out transactional business, or would you rather develop long-term, nurturing client relationships? If you want to build something easy to scale and perhaps sell down the road, high-volume, low touch may fill the bill. If you are developing a life style business to carry you into old age, or a "professional" business with a strong public image, think long-term and nurturing. Higher prices usually go hand-in-hand.
Develop a pricing perspective that fits your goals. Your decision will go a long way to determine who you do business with and how you do it, and will also effect how you can dispose of your business. There are no clear guides to the right choice. It's more a matter of preference and positioning.
But perspective is not the only element to pricing. By itself it will tell you how to price (high, low, middle of the road), but not the exact price itself. Before I share with you how to do that, let's examine a few common approaches to pricing.
As nuts as this may sound, lots of people price to pay the bills. No kidding. I've seen this advice in more than one article for professional service companies. "How much money do you want to earn? Divide that by how many hours you have to sell..." And so on. (By the way, cost-plus pricing is just as crazy.)
Price to time. This is what most services people do. They set their prices by the hour, or by the day. The biggest problem is this makes it way too easy for prospects to compare your price. It also puts them in control of your time if they do buy.
Price to competition. This is the most common form of pricing, and is the core of all prices based on market research. And it makes sense if your offer is comparable to that of your competitors.
One last common pricing structure is front-end or loss-leader pricing. Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things.
If your goal is to drive your competitors out of business, and you have deep pockets to sustain an unprofitable price war, this can work brilliantly. Many big box retailers, including Staples and Home Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and both raised prices when their markets thinned out.
If you have a profitable and expensive product or service, an effective approach is to sell something that is cheap. For instance, if you have a high-end seminar, a lo
Dear Santa,I want you to bring me absolutely, positively EVERYTHING IN THE WORLD for Christmas, but EVERYTHING IN THE UNIVERSE would be better. Before proceeding, please demonstrate prior mastery of these skills.Sincerely,Greta Human Resources SpecialistCan you imagine the audacity of a person who would pen such a note to dear Santa Claus, someone known for punctuality, an excellent track record and literally billions of references?Yet we think nothing of having human resources clerks craft position descriptions that sound as if a grabby, perfectionistic brat has defined the
Do you want a quick in-and-out transactional business, or would you rather develop long-term, nurturing client relationships? If you want to build something easy to scale and perhaps sell down the road, high-volume, low touch may fill the bill. If you are developing a life style business to carry you into old age, or a "professional" business with a strong public image, think long-term and nurturing. Higher prices usually go hand-in-hand.
Develop a pricing perspective that fits your goals. Your decision will go a long way to determine who you do business with and how you do it, and will also effect how you can dispose of your business. There are no clear guides to the right choice. It's more a matter of preference and positioning.
But perspective is not the only element to pricing. By itself it will tell you how to price (high, low, middle of the road), but not the exact price itself. Before I share with you how to do that, let's examine a few common approaches to pricing.
As nuts as this may sound, lots of people price to pay the bills. No kidding. I've seen this advice in more than one article for professional service companies. "How much money do you want to earn? Divide that by how many hours you have to sell..." And so on. (By the way, cost-plus pricing is just as crazy.)
Price to time. This is what most services people do. They set their prices by the hour, or by the day. The biggest problem is this makes it way too easy for prospects to compare your price. It also puts them in control of your time if they do buy.
Price to competition. This is the most common form of pricing, and is the core of all prices based on market research. And it makes sense if your offer is comparable to that of your competitors.
One last common pricing structure is front-end or loss-leader pricing. Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things.
If your goal is to drive your competitors out of business, and you have deep pockets to sustain an unprofitable price war, this can work brilliantly. Many big box retailers, including Staples and Home Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and both raised prices when their markets thinned out.
If you have a profitable and expensive product or service, an effective approach is to sell something that is cheap. For instance, if you have a high-end seminar, a lo
Newspaper inserts are a great way to advertise for retailers and services businesses. While it costs more than run-of-press newspaper advertising, it costs much less than direct mail. Regular newspaper advertising tend to get lost in the mix of black and white ads and dull color newsprint ads. However, inserts are full color glossy ads that fall out of the paper and into your potential customer's hands. This gives your advertising more impact and a better response rate. Inserts can also be targeted by geographics and demographics, giving less advertising waste.Direct mail can also target in the same way,
But perspective is not the only element to pricing. By itself it will tell you how to price (high, low, middle of the road), but not the exact price itself. Before I share with you how to do that, let's examine a few common approaches to pricing.
As nuts as this may sound, lots of people price to pay the bills. No kidding. I've seen this advice in more than one article for professional service companies. "How much money do you want to earn? Divide that by how many hours you have to sell..." And so on. (By the way, cost-plus pricing is just as crazy.)
Price to time. This is what most services people do. They set their prices by the hour, or by the day. The biggest problem is this makes it way too easy for prospects to compare your price. It also puts them in control of your time if they do buy.
Price to competition. This is the most common form of pricing, and is the core of all prices based on market research. And it makes sense if your offer is comparable to that of your competitors.
One last common pricing structure is front-end or loss-leader pricing. Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things.
If your goal is to drive your competitors out of business, and you have deep pockets to sustain an unprofitable price war, this can work brilliantly. Many big box retailers, including Staples and Home Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and both raised prices when their markets thinned out.
If you have a profitable and expensive product or service, an effective approach is to sell something that is cheap. For instance, if you have a high-end seminar, a lo
There exist many definitions of marketing, in fact, too many. Together with the progression of the Internet, and consequently the development of new marketing techniques, technologies and stratagem, new definitions of marketing are appearing in large numbers. However plural and diverse the definitions of marketing may be, the essence of the said remains intact. Marketing is still no doubt the unique function of the business enterprise and no prosperous business is possible nowadays without effective marketing.Most businesses believe that marketing effectiveness is expressed solely in numbers. Apparently
One last common pricing structure is front-end or loss-leader pricing. Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things.
If your goal is to drive your competitors out of business, and you have deep pockets to sustain an unprofitable price war, this can work brilliantly. Many big box retailers, including Staples and Home Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and both raised prices when their markets thinned out.
If you have a profitable and expensive product or service, an effective approach is to sell something that is cheap. For instance, if you have a high-end seminar, a low end ebook or free consultation can bring in all the customers you want.
There are other considerations to pricing besides the bottom line. But if you want to understand how to increase your profits, stay tuned for Part 3.
(c) Copyright Paul Lemberg. All rights reserved
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