Here are two stats that might make you rethink your approach:
๐ย 85%ย ๐จ๐ ๐ ๐ฅ๐จ๐๐๐ฅ ๐๐๐๐ฌ ๐๐๐ฆ๐ข๐ญ ๐ญ๐ก๐๐ข๐ซ ๐ฉ๐ซ๐ข๐๐ข๐ง๐ ๐ฆ๐จ๐๐๐ฅ ๐ง๐๐๐๐ฌ ๐ฌ๐ข๐ ๐ง๐ข๐๐ข๐๐๐ง๐ญ ๐ข๐ฆ๐ฉ๐ซ๐จ๐ฏ๐๐ฆ๐๐ง๐ญ (Bain & Co).
๐ ๐ย 1%ย ๐ฉ๐ซ๐ข๐๐ ๐ข๐ง๐๐ซ๐๐๐ฌ๐ ๐๐๐ง ๐๐จ๐จ๐ฌ๐ญ ๐ฉ๐ซ๐จ๐๐ข๐ญ๐ฌ ๐๐ฒย 8-10%ย (McKinsey).
Put those together, and youโve got a massive, untapped opportunity for profit growth. Yet most businesses stick with pricing strategies based more on fear than facts.
Take discounting, for example. Many businesses accept that offering discounts is โjust the way things are.โ But poorly managed discounts are one of the biggest causes of margin erosion.
๐๐๐ซ๐โ๐ฌ ๐ญ๐ก๐ ๐๐ก๐๐ฅ๐ฅ๐๐ง๐ ๐:
What would happen if you halved all of your discounts: so 10% becomes 5%, 20% becomes 10%, and so on?
๐๐ฎ๐ญ ๐ซ๐๐๐๐ญ๐ข๐จ๐ง๐ฌ:
โช๏ธ Customers will push back.
โช๏ธ Sales teams will hate it
โช๏ธCompetitors will take advantage
โช๏ธIt feels risky and you donโt want to rock the boat.
๐๐๐ญ๐ฎ๐๐ฅ ๐ซ๐๐๐ฅ๐ข๐ญ๐ฒ (๐ฐ๐ข๐ญ๐ก ๐ ๐ฉ๐ซ๐จ๐ฉ๐๐ซ ๐ฉ๐ฅ๐๐ง):
โช๏ธNew customers wonโt notice the smaller discounts.
โช๏ธSales teams can be trained to use discounts correctly
โช๏ธA small number of customers might complain, but the majority wonโt.
โช๏ธNet selling prices improve by 3-5%, with the upside all going straight to your bottom line.
There are hundreds, maybe thousands of ways that your pricing model can be tweaked or improved, yet most people stick with the same industry-wide approach that everyone else uses.
Businesses that take the time to carefully consider their pricing model and are willing to try new approaches will almost always become more profitable as a result.
And FOMU (fear of messing up) can be managed to ensure key risks are identified and a plan put in place to mitigate them.
So, whatโs more important to you?
๐. ๐๐๐ฏ๐๐ง๐ฎ๐ ๐ ๐ซ๐จ๐ฐ๐ญ๐ก: Chasing top-line growth at all costs, even if it means weak pricing, dodgy discounts and thin margins.
๐. ๐๐ซ๐จ๐๐ข๐ญ ๐ ๐ซ๐จ๐ฐ๐ญ๐ก: Prioritising sustainable margins, even if it means losing a few price-sensitive customers along the way.
Smarter pricing isnโt as scary as you thinkโand the upside is huge.
Are you optimising for revenue or profit growth?