Price Products and Services for Profit not Sales
Base your prices on profit goals, not on sales goals. Businesses tend to measure success by growth in sales. Instinctively, this leads to cutting prices to boost sales. Price your goods or services by trying to enhance profits rather than inflating sales. How much more must you sell to avoid losing profits when you cut prices? If you raise your prices, how much could sales fall without hurting profits? Intuition says you'll lose business and profits will fall if you raise prices. However, it's proven that higher prices usually will add to profits.
Think about this: If you have a 45% gross profit margin and you raise profits 5%, you could lose 10% of sales and still have the same profit. But, cutting prices by 5% means you must increase sales 13% to maintain the same profits. One way to "play" with different assumptions like the above is to use "breakeven analysis". If you would like us to prepare a break-even analysis worksheet and help you interpret its implications, please contact us.