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Free Business InformationHigher Prices Lead To Higher Profits - Part 2
by:
Paul Lemberg
In the 1st part of this series we looked at the effect prices have on profits. A change to the top can have a fantastic effect on profits piece reckless discounting and careless cost reductions wish certainly have a black one. If you don't fully understand the implications, or haven't see Part 1, go back and do so now. (http://www.paullemberg.com/higher-part1.html)
By now you may be asking yourself, "What should my prices be?"
Before you go start ever-changing prices, you need to clarify a core part of your overall positioning. You need a evaluation perspective.
Do you want to be a low priced provider, or would-be you rather sell the premium product? There are nice reasons for being a low priced seller. Simply as Archangel
Dingle - that's wherever
he started, though he certainly isn't there now. Or look at Costco, or Amazon. If you look to these models for inspiration, do sure you have three things: a firm grasp on your margins, deep pockets, and the ability to do lots of volume. Without all of these three, you wish certainly go broke.
Where are you in person
more comfortable? If you sell at the high end of your cost spectrum, you are likely to attract higher end clients, and it would-be help to be comfortable in that rarefied atmosphere. On the another hand, you may feel better on the low end. It's a choice and you have to do it.
What wish attract the type of clients or customers you want? Your cost is a signal to your potential clients telling them who you are in the marketplace. And if your goal is to raise the quality of your clientele, the easiest way to do so is increase your prices.
Do you want a low service, volume business, or would-be you prefer fewer, choice clients and give them "high-touch"? High-volume, low-touch businesses can be really profitable, and can generally scale more easily, but require more planning. Low volume, high-touch (select always means high-touch) businesses, may be easier to build and require less overhead. If you are thinking of a life style business, go the latter route.
Do you want a quick in-and-out transactional business, or would-be you rather develop long-term, nurturing client relationships? If you want to build thing
easy to scale and possibly sell down the road, high-volume, low touch may fill the bill. If you are developing a life style business to carry you into old age, or a "professional" business with a strong public image, think long-term and nurturing. Higher prices normally go hand-in-hand.
Develop a evaluation perspective that fits your goals. Your decision wish go a long way to determine who you do business with and how you do it, and wish besides effect how you can dispose of your business. There are no clean guides to the right choice. It's more a matter of preference and positioning.
But perspective is not the only element to pricing. By itself it wish tell you how to cost (high, low, middle of the road), but not the exact cost itself. Before I share with you how to do that, let's examine a few common approaches to pricing.
As balmy as this may sound, lots of folk cost to pay the bills. No kidding. I've seen this proposal
in more than one article for professional service companies. "How more money do you want to earn? Divide that by how galore hours you have to sell..." And so on. (By the way, cost-plus evaluation is simply as crazy.)
Price to time. This is what most services folk do. They set their prices by the hour, or by the day. The biggest problem is this does it way too easy for prospects to compare your price. It besides puts them in control of your time if they do buy.
Price to competition. This is the most common form of pricing, and is the core of all prices based on market research. And it does sense if your offer is comparable to that of your competitors.
One last common evaluation structure is front-end or loss-leader pricing. Loss-leader evaluation is not designed to generate operational profits. Its intention is either to take market share from competitors or create customers to whom you wish later sell another things.
If your goal is to driving your competitors out of business, and you have deep pockets to sustain an unprofitable cost war, this can activity brilliantly. Galore big box retailers, including Staples and House Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and some
raised prices once
their markets cut out.
If you have a profitable and big-ticket product or service, an effective approach is to sell thing
that is cheap. For instance, if you have a high-end seminar, a low end ebook or free consultation can bring in all the customers you want.
There are another considerations to evaluation besides the bottom line. But if you want to understand how to increase your profits, stay tuned for Part 3.
Simply about the author:
Paul Lemberg is the President of Quantum Growth Coaching: Much Profits and Much Life for Entrepreneurs, Guaranteed. To get your copy of our free report with elaborate steps to grow your business at least 40% faster, go to www.fastergrowthnow.com
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