The final word on pricing for profit
There are many ways in which a business can aim to improve its profits. Most will follow the traditional routes of simply seeking to grow top line turnover, or a programme of action to reduce their costs, but the truth is that the easiest and the quickest route to increase the bottom line of any business is to get your pricing right.
Ultimately, the decision to adopt and adapt the ideas in this book is yours. Although some areas of the topic have a level of complexity that requires you to do some research and preparation, at its heart it really is very simple. You just have to make a choice to charge more.
It is, however, important to understand that in doing this you may end up treading on many toes as you seek to challenge some of the entrenched ideas within your business or of your colleagues. Argument and debate is no bad thing as it helps to develop balanced and reasoned approaches for any proposed changes. However, it is imperative that this debate is open and based on facts and evidence, not anecdotes and hearsay. If someone at the sharp end of your business resists an idea you want to implement, ask them to explain and evidence their point of view rather than just use it as an excuse to avoid change.
There are countless businesses that have used the ideas and concepts covered in the book, some of whom would not still be in business today had they not done so, and many others that have made enormous improvements to their profits and hence financial stability and future prosperity.
The very early chapters explained the background maths of the issue, ie that the impact of small changes in pricing has a much more dramatic impact than similarly small changes in winning customers, or selling extras or any other strategy to grow profits that you might choose.
The logic of the book boils down to a very simple premise:
1 Increasing prices will increase the turnover and hence the profitability of the business.
2 Increasing prices may cause some customers to stop buying.
The only decision for any business seeking to improve its profit is whether the benefit of 1) is greater than the consequence of 2).
In this book I therefore concentrated on two key aspects. The first was to give you the confidence that in the vast majority of businesses the impact of 1) is significantly greater than the possible downside of 2). In fact, in many examples the impact of 2) was quite simply nothing at all, and in only the most extreme situations does it outweigh the upside of the extra turnover and profit.
The second aspect was to give you techniques and ideas on how you can achieve a price increase without it necessarily being seen that way by your customers. More sophisticated presentation, better packaging and bundling of products and services all help to focus your customers’ attention on the value you deliver rather than the price that you charge. A sharper eye on discounts given away, or on which customers you really make money from, will help to keep you focussed on where profits are made and where they are given away.
Having read the book, it is now a choice for you as to whether you work through each of the individual chapter Action Points, picking out the issues that you intend to work on, analysing and planning a controlled project for gradual improvements, or whether you go back to Chapter 15 and just take each idea and run with it as suggested. Either way, it requires you to make a decision to invest more time and effort into this business-critical subject than you do at present.
So what would I recommend you do now?
In the vast majority of projects to improve profitability that I have seen, significant time and effort has been lost in thinking too much about all of the what if scenarios of any proposals. There are a good number of ideas in this book that are quite simply blindingly obvious common sense, such as getting better control over discounts.
The best advice is therefore to take the two or three ideas that seem most relevant to your business, and have a go at them straight away. Do not spend too much time thinking about it and get the classic ‘paralysis of analysis’, just get on with something simple and do it straight away.
Perhaps the most important step is to change your approach to the pricing issue. You need to ensure that pricing is seen as simply another business skill to be learned, developed and implemented in your business, and one that needs continual attention and constant reappraisal and adjustment.
Many of the end of chapter Action Points referred to a pricing team, comprising key senior people in your team with a balance of skills, from frontline selling to understand your customers, financial analysis and accounting expertise to get a grip on the numbers, and personnel or HR skills to help embrace change and institutionalize the positive changes needed. Build people around you who get comfortable with the topic and who can build their experiences and knowledge to help drive change.
But if you want the simple answer, and don’t have the time or resources to tackle the subject in such a structured way, just put your prices up. The customers or sales you lose are in all probability not making you any profit at the moment anyway, but even if they are, they will be less than the extra profit you make from the majority of happy customers who continue to value and appreciate the value you already deliver.
Good luck.