Pricing’s role in profits

Posted 2/10/14

The role that pricing plays in the financial structure and competitive profile of a small business is often misunderstood. Many business owners and entrepreneurs automatically assume that price increases put them at a disadvantage. But that’s not necessarily so if you have a clear strategy for setting prices at your business. Some pricing experts, for example, argue that small, strategically targeted price increases can actually give a company a competitive edge.

The key is to bridge the disconnect that exists between pricing strategy and profits for so many businesses, both large and small. Proper pricing is more complex that most of us realize. Business owners usually see pricing as a mix of markups, margins and matching the competition – plus a modicum of “gut feeling.”

But such an approach has no relevance for the most important component of all: What customers are actually willing to pay.

Achieving optimum pricing, however, requires thinking more holistically about your strategy. It’s NOT simply a matter of jacking up prices across the board. Most businesses can benefit by employing a variety of pricing tactics – and so can customers. Instead of presenting customers with one take-it-or-leave-it price, for example, offering a choice of prices, versions and pricing plans can attract more customers and improve profits.

Here are pricing tips to consider:

• Focus on profit, not margin. Many businesses equate “high margin” with pricing success. Maybe so, but a high margin can also point to opportunities to serve more customers by using discount tactics as well. Profit is your goal, not margin.

• Avoid the markup mistake. The most common pricing pitfall is setting your price based merely on a set markup. Such “cost-plus” plans often forego potential profits because they never account for what customers are willing to pay.

Next Page
PBN Hosted

Join PBN for the best networking event and party of the winter - January 15, 2015 - the Book of Lists Party at the Providence Public Library. Reserve your spot by December 31st and get a holiday gift from PBN!
  • Best Places to Work
    Enrollment is now open for the 7th annual Best Places to Work program. Winners w ...
  • Manufacturing Awards
    Applications are now being accepted for the 2nd Annual Manufacturing Awards. Dea ...
Purchase Data
Book of Lists
Book of Lists cover
PBN's annual Book of Lists has been an essential resource for the local business community for almost 30 years. The Book of Lists features a wealth of company rankings from a variety of fields and industries, including banking, health care, real estate, law, hospitality, education, not-for-profits, technology and many more.
Data icons
Data can be purchased as single lists, in either Excel or PDF format; the entire database of the published book, in Excel format; or a printed copy of the Book of Lists.
  • Purchase an e-File of a single list
  • Purchase an e-File of the entire Book of Lists database
  • Purchase a printed copy of the Book of Lists
    Latest News