How to Find Your Best Selling Price

When it comes to considering your pricing, it’s absolutely essential to realise that:

  • the customer will only buy if they feel that the value to them is greater than the price; and
  • therefore it’s your prospects who will set the price by what they’re prepared to pay.

Emphasise uniqueness

The more you can show how your product or service is unique and different from others the wider the range of possible prices you may be able to charge. This is because the customer has little to compare what you are offering against.

You may find that if you can show a clear difference, charging a higher price is possible and may actually work better. Interestingly, people automatically value a higher priced item over a lower priced item. In fact some people just wouldn’t buy the lower priced item on the belief it’s lower quality.

Pricing tip

It’s been proven in studies that dropping just below round numbers (such as €99 rather than €100) work.

This technique is of course very widely known. And it’s been shown recently that many people now read €99 as €100. The way around this is to change the 9 to a 5 (say €8.95 rather than €8.99) so that it will continue to have an impact.

Minimum price

Clearly, you should always have a minimum price below which it doesn’t make sense to sell your product or service.

You’ve got your overheads to cover and the minimum amount you need to earn to cover your personal living costs.

Test

To test for the optimum price you need to test some price points.

If you can emphasise the uniqueness in what you do, look at raising prices by 25% or 50%. But if you can’t, small increases are likely to be all that will be allowed by your market.

Once you have done this, record the results.

You also need to test to see if price decreases make you more profit.

Pricing example

When you’re assessing the effect of a price you need to make sure you measure the impact of price movements on profit and not on sales levels. Why?

Well, let’s suppose that we’re selling widgets.

Current Sales

Sales (1000 widgets at €100 each) 100,000
Cost of sales (1000 widgets at €70 each) 70,000
Gross Profit 30,000
Fixed overheads 25,000
Profit 5,000

We want to know if we’re going to better off by reducing prices by 10% or by increasing them by 10%. The only way to find out is to test.

After testing, we find out …

  • Option 1 of reducing prices by 10% results in a 20% increase in quantity sold, and
  • Option 2 of increasing prices by 10% results in a 20% fall in quantity sold.

Which should we do?

It’s tempting to go for option 1 with 20% more sales with only a price cut of 10%. But let’s look at what happens financially.

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Option 1 Option 2
Sales (1200 widgets at €90 each) 108,000 (800x€110) 88,000
Cost of sales (1200 widgets at €70 each) 84,000 (800x€70) 56,000
Gross Profit 24,000 32,000
Fixed overheads 25,000 25,000
(Loss)/Profit (1,000) 7,000

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Raising prices with less sales is better by €8,000. We do less work, but actually gain more profit!

Of course, every situation will vary depending on your profit margins, which is why it’s important to do the numbers. However, lowering prices generally means you have to significantly increase sales volumes to make more profit.

Pricing/volume chart

The following chart gives you an idea of the effect on your profitability by showing the change in sales volume needed if you reduce or increase your prices. You can use this table as a guide to your pricing policy.

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If your present
gross profit percentage is:
20% 25% 30% 35% 40% 45% 50% 55% 60%
And your prices fall by To increase profit, sales volume must increase by more than…
2% 11% 9% 7% 6% 5% 5% 4% 4% 3%
4% 25% 19% 15% 13% 11% 10% 9% 8% 7%
6% 43% 32% 25% 21% 18% 15% 14% 12% 11%
8% 67% 47% 36% 30% 25% 22% 19% 17% 15%
10% 100% 67% 50% 40% 33% 29% 25% 22% 20%
12% 150% 92% 67% 52% 43% 36% 32% 28% 25%
14% 233% 127% 88% 67% 54% 45% 39% 34% 30%
16% 400% 178% 114% 84% 67% 55% 47% 41% 36%
18% 900% 257% 150% 106% 82% 67% 56% 49% 43%
20% 400% 200% 133% 100% 80% 67% 57% 50%
25% 500% 250% 167% 125% 100% 83% 71%
If your present
gross profit percentage is:
20% 25% 30% 35% 40% 45% 50% 55% 60%
And your prices rise by To increase profit, sales volume must not reduce by more than…
2% 9% 7% 6% 5% 5% 4% 4% 4% 3%
4% 17% 14% 12% 10% 9% 8% 7% 7% 6%
6% 23% 19% 17% 15% 13% 12% 11% 10% 9%
8% 29% 24% 21% 19% 17% 15% 14% 13% 12%
10% 33% 29% 25% 22% 20% 18% 17% 15% 14%
12% 38% 32% 29% 26% 23% 21% 19% 18% 17%
14% 41% 36% 32% 29% 26% 24% 22% 20% 19%
16% 44% 39% 35% 31% 29% 26% 24% 23% 21%
18% 47% 42% 38% 34% 31% 29% 26% 25% 23%
20% 50% 44% 40% 36% 33% 31% 29% 27% 25%
25% 56% 50% 45% 42% 38% 36% 33% 31% 29%

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The only way to find your best price is to test and analyse.

Call Now

Please call Noel Murphy today on 021 431 0266 if you need further information on how to find your best selling price or to arrange a free consultation.

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Related article:                       10 Ways to Increase Your Profit