In the last three blog posts we’ve been talking about the concept of changing New Year’s Resolutions into New Year’s Revolutions – not in the context of overthrowing anything, but from the perspective of a cyclical and sustainable process that continually energizes your organization. Revolutions act like the flywheel on a bike, delivering significant benefit even when you’re coasting on the pedals.
Do you intuitively know that you’re leaving money on the table? That your products and services create far more value for your customers than you’re capturing on your bottom line? That your sales team is often using discounts to get the deal rather than value-based selling? That your pricing needs a post-recession overhaul to come into line with your costs of providing those products and services? Have you absorbed price increases from your suppliers, yet been hesitant to pass them along to your customers?
You’re not alone. Most product manufacturers don’t price for the value they create. Most service providers wildly over-deliver, and as a result they don’t price for the value they create. I like to advise my clients to take a very strategic approach plus a dash of verve and daring when pricing for value:
- Find out what customers value, and give them more of it (No, not by doing another survey, that will never deliver the insights you need). Click here to find out how.
- Strategically implement value-based pricing based not only on how much value you deliver, but based on how valuable the customer is to you.
- Increase prices by at least 1%
- Decrease discounts by at least 1%
- Test every price change on your Vampire customers first.
And laugh all the way to the bank.
One of the fastest and easiest ways to revolutionize your profitability is to increase prices, but most business leaders fail to recognize that. They think that a 1% increase in pricing creates a 1% increase in the bottom line. Not so. When you actually do the math, every 1% you increase (or discount) on the top line has between a 16-38% increase (or decrease) on your bottom line. Don’t believe me? Send me a quick email at PriceforValue@AnneCGraham.com and I’ll walk you through the math as it applies to your specific business.
Increase prices by 6% overall (nope, not necessarily all in one shot) and you’ve just doubled your profits, even if you’re at the low end of the 16-38% scale. Discount on a regular basis by as little as 6% and you’ve… well, you get the idea.
Find 1% Everywhere to Double Your Profits. Period.
Use the below Checklist to get started.
A trucking company, simply did a bid review and found that of the bids he won, he was over 7-10% lower. So he hedged his bets and raised his prices 6%. Ka-ching! Double the profits, because he didn’t lose any business as a result.
When I was in sales in the early days of my career, my commissions were paid inversely to how much I discounted. I learned to sell value not price in a hurry! And I took the 40% average discount amongst all the reps in our company down to less than 5% as a result. Ka-ching! Do the math on a $35 reduction in discounts… it’s a pretty big number on the bottom line.
A recycling company had a vampire customer who was costing them a fortune because they’re under-priced to get the business, and were stuck with it. After realizing the value of 1%, the recycling CEO tackled the issue head-on. He nicely but firmly advised the customer that in order to continue doing business, the new price would be 12 times what they were paying at the time – an outrageous increase!
Or was it? The customer simply said “what took you so long, all your competitors have been quoting us even more!” They had a solid working relationship and had a good laugh together about “buying the business”, because they’d both been guilty. That’s even bigger math when you calculate the bottom-line impact that a 12x price increase had! It’s an extreme example, however I’m a firm believer that “you don’t ask, you don’t get.” Had the customer switched to the competition, all this recycler would have lost was the red ink every month. Most of us will never be gutsy enough to follow his lead.
This year, your fourth Revolution means pricing for value by finding 1% everywhere…
and reaping the rewards on your bottom line.
You can increase profits the hard way – by trying to drive more sales or implement conventional cost-cutting. Or you can create a flywheel effect in your business that changes your results just by finding your 1%.
Revolution #4 Checklist:
How One Manufacturer Used 5 Ways to Price for Value
and Found [More Than] 1% Everywhere
Right now, share the best way that you’ve ever found to raise prices safely and with integrity. Then access an even more complete strategy in the checklist that follows.