Tweet

I met a pricing genius

Written by:

Article Overview: Pricing is often the key to success when building a business.

I met a pricing genius

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.

Related Articles
  Are You in the Right Business? How to Discover the Business You Were Meant to Do
  Are You Maximizing Your Genius?
  Packaging Web Design: Pros and Cons
  Smart Women Step Into Their Gift
  The Intuitive Genius of Your Being

Article Tags: business owner, magic price, margins, pricing



Related Forum Posts
Re: How do you back up your computer? - Hi ideasuniversity, The $5 per computer pricing (or $50 per year) for unlimited storage is pricing we intend to have ongoing. Thanks, Gleb
Re: The greatest gold mine in the world - When I saw the title of this post, I immediately thought, "YOU are the greatest asset to be mined". Yes, our brain IS a gold mine, but even richer is the asset of YOU with your mind. I like to think of each of us having a genius to be unveiled. Your gifts and abilities, along with your mind, are brought to life by who you ARE. It is your sense of passion and purpose which will unveil the greatness within. When Shri mentioned thinking outside the box, it made me think of possibility. When we open up to possibility and bring our whole genius along for the ride, well, the sky is the limit! Let's use our minds and our hearts and see what incredible things can happen! Warm regards, Tami
Re: International Shipping Costs Money! - [quote="Kevin Lee":2nynbu3v][quote="Alan Mater":2nynbu3v]Exactly! I wish eBay would incorporate a way for users to report such sellers. They already implemented the 'no negative feedback for buyers' policy, which I'm a huge fan of. Some more changes still need made.[/quote:2nynbu3v] Hey Alan, It'd be great if there was a "pricing officer" to cap unfair shipping costs and put an end to ticket scalpers. It's crazy to have to pay double or more just to see a good show these days.[/quote:2nynbu3v] Hi Kevin, I agree. Tickets for anything these days are scalped on eBay. But, do you think a "pricing officer" would be enough? I think they need to implement a system that allows users to report offending listings. Then, those reports could be sent to the pricing officer, rather than the officer having to search every single listing on his/her own. Having the power and numbers of the users would be to eBay's advantage in this case.
Re: Those Annoying Telemarketers - Haha I love it. Good tips! I will definitely try the one asking if I can get their number and call them back at home. That's genius!
Re: How do you negotiate your rate or price? - Hi Everyone, Thanks for sharing your pricing tips! [quote="OmnivoreInk":2medvgsc]In my case, it's for writing gigs. I get people who say, "How much do you want to be paid." My new line is going to be - "How much will you pay me?" Then if you ask for less than you're worth - they'll be pleased to give that to you![/quote:2medvgsc] Barbara, I like your strategy on how you turn the question back on your employer. I too feel as if it's better to first hear what the "ball park" figure is before stating my fee. At the moment, I'm trying to do some private English tutoring and it would be kind of silly to drive 15-20 minutes to teach for 1 hour, make only $20 and then spend another 15-20 minutes getting home. But if I asked for $30-40/hr (what I feel I'm worth), then I might be pricing myself too high, especially if I'm working for a tutoring company.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Starting A Set of Books

Four Secrets to Earning Income as an Author

The five pillars of internet marketing strategy

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.