Setting Profitable Prices: A Step-by-Step Guide to Pricing Strategy--Without Hiring a Consultant, + Website

Chapter 1

Why Pricing Is the Key to Your Success

Of all the marketing problems you face in launching a new product, pricing is the most important—and the most difficult!

Want proof?

If your new product costs you, say, $45 to produce, and you sell it for $69, your profit—what you can take home with you—is $24.

• If you price that same product $10 higher, you get to pocket the entire $10 extra—resulting in $34 profit instead of $24.
• If you price your product $10 lower, you lose out of your pocket the full $10—resulting in $14 profit instead of $24.

If you sell more of your products, the profit is reduced by your costs of making the extra products. For example, you get an extra sale that brings in $45, but only $24 of that is actual profit.

Raise Prices—or Sell More Products?

Ask most businesspeople what they could do to dramatically increase their profits, and their answers are usually:

• Increase my advertising
• Add more salespeople
• Add incentives to buy more

All three strategies would probably sell more products, but they are risky. The first two will increase your costs—for which you hope to then get a payoff in increased sales and (hopefully) profits. The third strategy will lower your profit margin, so you’re earning less per unit sold.

Yet these three answers miss the most obvious way to dramatically increase profits: a price raise.

Let’s analyze what is best for profits—10 percent more sales (units) or a 10 percent higher price.

If you are currently selling $100,000 worth of ...