Pricing – The number one determining factor of profitability
For several years now I have been in the privileged position of getting to know many of our clients’ businesses on an intimate level.
For every single client I have worked with in this level of detail the same single factor emerges as the key determining factor of profitability – the way that they price their goods and services.
Why pricing is so important?
- The extra income from each sale goes straight to the bottom line for most businesses.
- It provides an automatic filter to deter non-ideal customers from wanting to work with you.
- It is essential that every business outgrows the instinctive urge to take on any work at any price, which is very often what they had to do to launch the business in the first place.
- When you have a good pricing system it is much easier to accept (psychologically) the more frequent rejections that are likely to follow from higher prices.
- One of the unexpected reasons is that it forces the business to improve the standard of its service level to justify the higher price. This tends to automatically take you “up market” or into a niche area, which is where the most profitable small businesses operate.
Please leave a comment with your thoughts and stories of pricing successes (or otherwise).
To read what the E-Myth blog has to say about pricing, have a look here.