I know at first glance this sounds obvious, but it may be worth it for you to think about your prices. At least just for moment.How to decide your current price? Did you conduct market research to understand what the prospect will pay? Or do you compare yourself to your competitors and be based your price on that? Or is it a crapshoot, and random shooting in the dark? This is the way most people do, and they're all wrong. Due to the price you charge for your products and services is more important than you think.
The following few paragraphs a bit heavy, but stay with me because it would be very important for you to understand.Let 's say you sell high-margin products - information products and software are two excellent examples. Price is $ 60, and your cost is $ 10 - which means that your gross margin (selling price - your cost) is $ 50 each time you sell a unit. Suppose further that the overhead is $ 5,000 per month.
If you sell 100 units will break even, now want to sell more, and decided to make some business from competitors by lowering your price -? Temporary. Lower it to $ 40-33% discount, and not worth $ 10 and uncommon.Your fixed overhead was $ 5,000, now only your gross margin is $ 30-60% of what it was before. And how many units you need to break even now? 166! That is 66% more sales units required to attain the 33% price cut! But what if you are feeling very aggressive and you get half the price (also not unheard of) to $ 30. Now you will have to sell 250 units - just cut though! It is 2-1/2 times as much as before. How easy do you think that we will use another example - something that has real production costs. This time, your product sells for $ 100, and charge you $ 50 of goods per unit, for gross profits of $ 50. Both overhead costs of $ 5,000, the number of units to break even. Now imagine you 20% price cut, to $ 80, leaving you $ 30 gross margin.
Need to sell 66% more units. Ouch! What if you cut the price to $ 70. The price cut of 30% means you have to sell more units of 2-1/2 times - just stay even.Let's go further ... The competition is really heating up, and you think they are match cut to cut is the way to go. The price for this amazing widget you are now a bargain basement $ 60. (Salespeople Shucks, it is only 40% of your original price. And business owners do this every day.) How many units you need to open though? 500.Five hundred? That is five times your original number.Do you really think you can sell five times what you did before - at least without significantly increasing overhead and variable costs to sales How many times you've done it as response to competitive pressures How? Many times you cut the price because you think it will help you sell more? What we just did is a simplified version of the so-called margin learning, and I hope it provides a glimmer of what can happen when non-priced.
For the most part, your rebate will not automatically allow you to sell 66% more than you did before, and in general - at least not in the universe - you do not have to sell 250% more, and not You never sold 500% more with the kind of price cutting.But there is some good news - and it's very visible good.Let 'what happens when you raise your prices.Remember your high-margin products. It sells for $ 60 and worth $ 10 make.Through good product positioning and marketing is very nice raise the price to $ 70. That was up 15%. Now you only need to sell 83 units to break even, and if you sell the same 100 units, revenues went from $ 0 to $ 1000. Good highlights ... And that the product is "hard" - the one with a $ 50 fee? Raise prices by 20% to $ 120, your margin increased to $ 70, and now your breakeven drops 71, and you make $ 2000 if you sell the same amount them.
See how it work? You can do the same study a little more sophisticated manner, considering the cost of your marketing, sales or affiliate commissions, travel expenses if you have them, and so on. You can see the effect of the actual price varies greatly depending on details.If have high leverage, pay-only-for-results affiliate model, a very high gross margin and almost no fixed overhead, much to price flexibility. You can cut the price to 25% only need to sell 15% more! It was not too bad at all.But just kind of model. If you have an office, some staff, and physical products - in other words, the price-low fixed overhead can kill you - and even if you see a higher price coming.
And They can make you rich.By now? begin to see the tragic effects of mis-pricing on the downside, and the possibility of raising wonderful prices.This only enrich your work, of course, when you can also increase your value proposition .. . Stay tuned for part 2.Follow the link at the bottom of the page to get a copy of the excel spreadsheet to play with. Get a spreadsheet, enter the number of their own. It's really blow your mind. Also, please feel free to pass this article or spreadsheet to your friends and colleagues. They will certainly appreciate it. (C) Copyright Paul Lemberg. All rights reserved
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