Pricing 3: Why is pricing so powerful? The math says it all!

Pricing, Sales and Business Development, Value Proposition

 

For the purposes of demonstration, we are going to assume: A business with a 35% gross margin

Raising Prices

  1. Increase prices by 10%: Gross Margin dollars increase by 29% and Gross Margin percentage by 17%
  2. Increase prices by 10%: You can lose 25% of your sales volume and still have the same gross margin dollars.

Lowering Prices

  1. Decrease prices by 10%: Gross Margin percentage decreases 20% and Gross Margin dollars decrease by 29%
  2. Decrease prices by 10% and you will need to increase sales volume by almost double to maintain Gross Margin (The fallacy of making it up on volume!

The best way to maximize profit:

Differentiate! Deliver High Value and Price Accordingly.

When you raise prices correctly, you not only will not lose sales volume, you will grow sales volume and profit.

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The next blog: Developing Value Propositions: Why your customers will want to fully compensate you for the value your product or service delivers.