I met a pricing genius
I met a pricing genius
Like most good philosophies his concept on pricing was simple. “Everything has a magic price” he used to say. That’s where you sell just the right amount of everything to maximize revenues. When you think about it his pricing challenge was actually quite difficult. If he priced the chicken breasts too low then he would wind up having to drop his prices on legs and wings so they would move or worse yet he might have to throw them out. Fred had more than chickens to worry about. He also had sides of beef and pork products to consider. It was, and still is, a busy butcher shop. Pricing was a continuous activity for him.
His pricing also considered the 12 people that worked for the business. Fred wanted them to be able to raise families and enjoy life. He had also just purchased his own building and needed to pay for it. The “magic price” had a lot riding on it.
Pricing is one of the critical issues for all business owners. You can’t just keep pushing the price up and up because your customers will stop coming. That being said you have to protect your business from the “grinders”. These folks seem to make it their life’s mission to put small business owners in the poorhouse.
Every small business gets their share of them. They don’t really bother big companies though. I can’t imagine that they go into Starbucks and ask them to match McDonald’s pricing on a cup of coffee.
Fred was one of those people who was both loveable and grumpy at the same time. He didn’t have a lot of patience for “grinders”.
When you set your pricing you have to consider the future of your business. Are you going to be able to pay your key employees enough to keep them? Will you generate enough profits to reinvest in the business?
How will it impact the “busy ness” of the business? If you increase your prices by 10% and 10% of the customers leave then you’ll have the same revenues and less work. Chances are the customers who leave aren’t the ones that you enjoy dealing with anyways.
Economists call this price elasticity. Basically it charts total revenues at different price points.
If you think that dropping your prices will increase revenues and hopefully profits as well then you should be careful because the lowest price strategy depends on having the lowest costs. Big box retailers are notorious for beating up on their suppliers. If you adopt this approach you most likely will have to become a “grinder” yourself.
It is possible to be even handed in your pricing. Some items on your “menu” could be raised while others could be lowered. If you have a large “menu” it is likely that some adjustments should be made.
It’s also a good idea to secret shop your competitors to find out what their pricing is like. If you find that there is a range of prices take the time to look around and see who is more successful, the companies with the lowest prices or the highest.
Pricing can make all the difference in the world. I know a business owner who raised his prices by 10% and business went up by 20%. The pricing only explained half of the increase. The other half was explained by a combination of factors. They felt that they had to justify the increase so they did a better job of explaining the value to the customers. This was interesting because the service didn’t get better they just improved their presentations. Also some customers previously went somewhere else because they thought the price was too low to do the work properly.
Schedule reviews of your pricing. Follow Fred’s lead by making “magic pricing” a regular activity. It can bring you great results.
Fred brought in a partner and has since retired his partner went on to bring in some younger partners and the business continues to create great lifestyles for the owners. The benefits of good pricing can last generations.
I met a pricing genius - To learn more about this author, visit John Cameron's Website.
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I met a pricing genius in the most unexpected of places. When my wife and I started going out she worked at a butcher shop. The owner’s name was Fred, it really was, and every day he took up his position at the table with the butchers to his left and the display counter to his right. This way he could keep his eyes and ears on everything.
Like most good philosophies his concept on pricing was simple. “Everything has a magic price” he used to say. That’s where you sell just the right amount of everything to maximize revenues. When you think about it his pricing challenge was actually quite difficult. If he priced the chicken breasts too low then he would wind up having to drop his prices on legs and wings so they would move or worse yet he might have to throw them out. Fred had more than chickens to worry about. He also had sides of beef and pork products to consider. It was, and still is, a busy butcher shop. Pricing was a continuous activity for him.
His pricing also considered the 12 people that worked for the business. Fred wanted them to be able to raise families and enjoy life. He had also just purchased his own building and needed to pay for it. The “magic price” had a lot riding on it.
Pricing is one of the critical issues for all business owners. You can’t just keep pushing the price up and up because your customers will stop coming. That being said you have to protect your business from the “grinders”. These folks seem to make it their life’s mission to put small business owners in the poorhouse.
Every small business gets their share of them. They don’t really bother big companies though. I can’t imagine that they go into Starbucks and ask them to match McDonald’s pricing on a cup of coffee.
Fred was one of those people who was both loveable and grumpy at the same time. He didn’t have a lot of patience for “grinders”.
When you set your pricing you have to consider the future of your business. Are you going to be able to pay your key employees enough to keep them? Will you generate enough profits to reinvest in the business?
How will it impact the “busy ness” of the business? If you increase your prices by 10% and 10% of the customers leave then you’ll have the same revenues and less work. Chances are the customers who leave aren’t the ones that you enjoy dealing with anyways.
Economists call this price elasticity. Basically it charts total revenues at different price points.
If you think that dropping your prices will increase revenues and hopefully profits as well then you should be careful because the lowest price strategy depends on having the lowest costs. Big box retailers are notorious for beating up on their suppliers. If you adopt this approach you most likely will have to become a “grinder” yourself.
It is possible to be even handed in your pricing. Some items on your “menu” could be raised while others could be lowered. If you have a large “menu” it is likely that some adjustments should be made.
It’s also a good idea to secret shop your competitors to find out what their pricing is like. If you find that there is a range of prices take the time to look around and see who is more successful, the companies with the lowest prices or the highest.
Pricing can make all the difference in the world. I know a business owner who raised his prices by 10% and business went up by 20%. The pricing only explained half of the increase. The other half was explained by a combination of factors. They felt that they had to justify the increase so they did a better job of explaining the value to the customers. This was interesting because the service didn’t get better they just improved their presentations. Also some customers previously went somewhere else because they thought the price was too low to do the work properly.
Schedule reviews of your pricing. Follow Fred’s lead by making “magic pricing” a regular activity. It can bring you great results.
Fred brought in a partner and has since retired his partner went on to bring in some younger partners and the business continues to create great lifestyles for the owners. The benefits of good pricing can last generations.
I met a pricing genius - To learn more about this author, visit John Cameron's Website.
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