So far, so good – but let’s talk now about measurability. How will you know when you’ve got it right? We’re back to the old acronym SMART, for goals – they should be specific, measurable, awesome, relevant and time-lined. So a goal related to pricing, expressed in SMART terms could be ‘To increase turnover by 10% by the sixth month from now’. Only you can say whether you think such a goal is awesome and relevant, but let’s say it is.
How will I know whether my price is right?
Volume of sales is a good first indicator. If no-one’s buying from you, then clearly something’s wrong and it could be the price. If you think this is the problem, then either you’re pricing your product out of the market (you need to consider value here), or maybe the price is too low to attract the type of customer you’ve identified as your ideal (and which your marketing is aimed at).
If this is your problem, then some customer research is needed. Maybe you could conduct exit surveys, or a mystery shopping exercise. Alternatively, perhaps those customers who do buy from you could be asked to answer a very short survey on why they bought from you.
Don’t fall into the trap of assuming that your volume of sales is the only measure – that only applies if your net profit curve is matching your sales curve!
What other indicators might there be? If you’ve correctly identified the ideal customer profile, then try matching the footfall to the ideal – again by exit surveys and customer satisfaction questionnaires. Do the majority of your customers fit the ‘customer avatar’? If not, does your pricing strategy have any bearing on this?
In future blogs, I’ll be talking about some other pricing strategies you might try.
How can I use price to increase sales?
What may appear to be a radical suggestion is to increase your prices instead of slashing them. If your first reaction is that your customers will cease to buy from you – then think again! Say you are selling at a unit price of £100, and the cost to you is £80 per unit, then your profit per unit is £20. It’s perfectly possible that, if you were to increase your unit price, maybe add on some low-cost additional services (at a cost of say £2 per unit), you would be pleasantly surprised at the result. Say you increased the unit price to £110, how many customers are you likely to lose – let’s say 1 in 10. The gross profit per unit is now £28, and instead of selling 10 units you sell 9 at £110. Your gross profit is now £252 (9 x £28), with no increase in fixed overheads, and very possibly to a more discerning customer base. The outcome is that you have £52 more profit than when you were selling 10 units at £100 each which cost you £80 per unit. You do the maths for your business!
The exact measures you take will, of course, depend upon what your product and your business model is – but the principle’s the same for all businesses. Selling cheaply can result in a higher volume of sales (but to a volatile customer base), possibly more income into the business (but at a cost of working harder), and less profit (both per unit and overall). Is this really where you want to be?
Knowing your ideal customer and pricing for good value (even if the price is high) usually results in a discerning but satisfied customer, a higher profit margin and a better quality of life for you. You choose!