My Article Database: Free Articles for Teaching and Studying English as a Foreign Language in China - by Paul Sparks




 Homepage
 About Me
 Teachers
 Students
 Lessons
 Photographs
 Links
 World News
 ICQ Chat
 Contact Me
 Articles
 
My Article Database:

 

Accounting
Acne
Adsense
Advertising
Aerobics
Affiliate
Alternative
Articles
Attraction
Auctions
Audio Streaming
Auto Care
Auto Parts
Auto Responder
Aviation
Babies Toddler
Baby
Bankruptcy
Bathroom
Beauty
Bedroom
Blogging
Body Building
Book Marketing
Book Review
Branding
Breast Cancer
Broadband Internet
Business
Business Loan
Business Plan
Cancer
Car Buying
Career
Car Insurance
Car Loan
Car Maintenance
Cars
Casino
Cell Phone
Chat
Christmas
Claims
Coaching
Coffee
College University
Computer Tips
Cooking
Cooking Tips
Copywriting
Cosmetics
Craft
Creative Writing
Credit
Credit Cards
Credit Repair
Currency Trading
Data Recovery
Dating
Debt Relief
Diabetics
Diet
Digital Camera
Diving
Divorce
Domain
Driving Tips
Ebay
Ebook
Ecommerce
Email Marketing
E Marketing
Essay
Ezine
Fashion
Finance
Fishing
Fitness
Flu
Furniture
Gambling
Golf
Google
GPS
Hair
Hair Loss
HDTV
Health Insurance
Heart Disease
Hobbies
Holiday
Home Business
Home Improvement
Home Organization
Interior Design
Internet Tips
Investment
Jewelry
Kitchen
Ladies Accessories
Lawyer
LCD / PLASMA
Legal
Life Insurance

Return to Articles about Business

Higher Prices Lead To Higher Profits - Part 2

by: Paul Lemberg
In the first part of this series we looked at the effect prices have on profits. A change to the upside can have a wonderful effect on profits while reckless discounting and careless price reductions will surely have a disastrous one. If you don't fully understand the implications, or haven't read Part 1, go back and do so now. (http://www.paullemberg.com/higher-part1.html)

By now you may be asking yourself, "What should my prices be?"

Before you go start changing prices, you need to clarify a core part of your overall positioning. You need a pricing perspective.

Do you want to be a low priced provider, or would you rather sell the premium product? There are good reasons for being a low priced seller. Just as Michael Dell - that's where he started, although he certainly isn't there now. Or look at Costco, or Amazon. If you look to these models for inspiration, make sure you have three things: a firm grasp on your margins, deep pockets, and the ability to do lots of volume. Without all of these three, you will surely go broke.

Where are you personally more comfortable? If you sell at the high end of your price spectrum, you are likely to attract higher end clients, and it would help to be comfortable in that rarefied atmosphere. On the other hand, you may feel better on the low end. It's a choice and you have to make it.

What will attract the type of clients or customers you want? Your price is a signal to your potential clients telling them who you are in the marketplace. And if your goal is to raise the quality of your clientele, the easiest way to do so is increase your prices.

Do you want a low service, volume business, or would you prefer fewer, select clients and give them "high-touch"? High-volume, low-touch businesses can be very profitable, and can generally scale more easily, but require more planning. Low volume, high-touch (select always means high-touch) businesses, may be easier to build and require less overhead. If you are thinking of a lifestyle business, go the latter route.

Do you want a quick in-and-out transactional business, or would you rather develop long-term, nurturing client relationships? If you want to build something easy to scale and perhaps sell down the road, high-volume, low touch may fill the bill. If you are developing a life style business to carry you into old age, or a "professional" business with a strong public image, think long-term and nurturing. Higher prices usually go hand-in-hand.

Develop a pricing perspective that fits your goals. Your decision will go a long way to determine who you do business with and how you do it, and will also effect how you can dispose of your business. There are no clear guides to the right choice. It's more a matter of preference and positioning.

But perspective is not the only element to pricing. By itself it will tell you how to price (high, low, middle of the road), but not the exact price itself. Before I share with you how to do that, let's examine a few common approaches to pricing.

As nuts as this may sound, lots of people price to pay the bills. No kidding. I've seen this advice in more than one article for professional service companies. "How much money do you want to earn? Divide that by how many hours you have to sell..." And so on. (By the way, cost-plus pricing is just as crazy.)

Price to time. This is what most services people do. They set their prices by the hour, or by the day. The biggest problem is this makes it way too easy for prospects to compare your price. It also puts them in control of your time if they do buy.

Price to competition. This is the most common form of pricing, and is the core of all prices based on market research. And it makes sense if your offer is comparable to that of your competitors.

One last common pricing structure is front-end or loss-leader pricing. Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things.

If your goal is to drive your competitors out of business, and you have deep pockets to sustain an unprofitable price war, this can work brilliantly. Many big box retailers, including Staples and Home Depot have followed this strategy. Long years of low prices eventually crushed their competitors, and both raised prices when their markets thinned out.

If you have a profitable and expensive product or service, an effective approach is to sell something that is cheap. For instance, if you have a high-end seminar, a low end ebook or free consultation can bring in all the customers you want.

There are other considerations to pricing besides the bottom line. But if you want to understand how to increase your profits, stay tuned for Part 3.


About the author:
Paul Lemberg is the President of Quantum Growth Coaching: More Profits and More Life for Entrepreneurs, Guaranteed. To get your copy of our free report with detailed steps to grow your business at least 40% faster, go to www.fastergrowthnow.com


Circulated by Article Emporium

 

New! Watch Online Articles with YouTube for Free:

 

 

 

 

Click Here to Return to Top of Page