We all know that pricing is THE most powerful profit lever you have; get your selling price wrong and it doesn’t matter how amazing your business is. Most people understand that improving your pricing can have a dramatic impact on your profit, and getting it wrong can decimate your profit and put your business at risk. Great companies do pricing well.
So what do you need to address in your pricing strategy? (have you even got a pricing strategy?)
1) Make pricing central to all your business decisions. Your price is the way you realise value for your product and service so it has to be something you continually work on. Too many companies stick 3% on each year and leave it at that. Pricing affects every function in your business: product management, sales, marketing, finance and operations all affect or are affected by your pricing decisions.
2) Know your numbers. To get your pricing right you need to have a really strong grasp of your financials, your costs and margins, and how this affects your cash flow. Only when know these will you be sure your pricing is hitting the mark.
3) What do your customers want and need? What do they value in your product or service and so what they are willing to pay? This allows you to move away from a cost or market based approach to the more effective value based pricing. Understand the value created for customers and capturing that value in your price is central to your business success.
4) Create a customer offer that focuses on value to your customers, and differentiates you from your competitors. By demonstrating the value you deliver for your customers then your sales process becomes easier and you’ll be able to achieve a level of pricing your competitors may not.
5) Creating differentiation and value through pricing involves all areas of your business and is something worth taking the time to get right.
6) Focus on execution – having nailed the value you provide to your customers you need to make sure you’re consistently delivering that value, after all they’re probably paying you extra for it now.
Well I think there’s some great advice there, and having spoken to Andrew a few times now, I can see that pricing is an overlooked but easy way to grow the bottom line with the sales and overheads you already have, and yet most companies seem to price based on what their competitors charge. Is it time for a pricing re-think?
You can find out more about Andrew and his company here