Pricing strategy is something that’s often decided without much thought. What business owners often fail to anticipate is how quickly profit margins can disappear when they give away seemingly harmless concessions such as 10% price discounts.
Here’s a simple example…
For a business with gross margins of 20% a 10% discount gives away 50% of your profits. Is a 10% discount going to increase sales by 50%? Probably not.
Perhaps it’s obvious when you see the numbers like this, and I may have chosen an extreme example to illustrate a point, but these kind of pricing mistakes are far more commonplace than you would expect. It’s only after someone forces you to sit down and run the numbers that you see whether a price discounting strategy makes sense or not.
Here’s a calculator to try out your own numbers.
Take Home Lessons
- Know your gross profits and net profits across all your products and service offerings
- Run the numbers and calculate what increase in sales you would need to see for a price discount to show positive returns
- Don’t feel pressured into discounting by your competitors. Competing on price alone is rarely a winning strategy
If discounting isn’t the answer, what is? Go back to basics and concentrate on what it is you offer that makes you unique – then sell it at a price point that makes financial sense.
For actionable tips on finding your Unique Selling Points and standing out from your competitors – including examples, templates and case studies – download our free USP Marketing ebook.
