Secrets of Next-Level Entrepreneurs

CHAPTER 2The Smartest Way to Boost Profits Is Clever Pricing

Hermann Simon

Pricing, as a discipline, is relatively well understood by large companies. Intentional pricing is the most effective profit driver, making it equally important for companies of all sizes, ranging from individual entrepreneurs to large corporations. However, small and medium‐sized businesses often seem to underestimate the power of pricing.

Of course, large firms are more sophisticated in pricing, although some could benefit from a more focused approach. I have been asked thousands of times what I think is the most important aspect of pricing, and my answer is always the same: value. Even the Romans understood this concept; they used the same term for value as for price, proving they are part and parcel. To date, the fundamental equation for pricing is price equals value, in the sense that the value will determine the price.

Value can be assessed based on many factors of an exchange, and thus has several definitions; it's something I take home as an entrepreneur (including the profit), and it's how a customer perceives an interaction with a seller (what they receive in exchange for payment). Finally, the value is created for suppliers. For example, when suppliers receive payment or are part of a value chain that aligns with their values. To avoid potential misunderstandings, when I use the term value in the context of pricing, there is only one relevant definition—the value the customer perceives. If ...