Try Price Testing
One of dozens of strategies listed and linked to here:
How to Make More Money
From Your Business
By Steve Gillman
Yes, it can be tedious to do price testing in your business,
but it can also be one of the best ways to maximize your profits.
If you haven't done it before, you might be under the impression
that you want a price that brings in the most customers. That
might work for Wal-Mart, but the ultimate goal is not the most
customers nor the most revenue. The bottom line is still profit.
Let's look at an example to make it clear how doing something
that reduces your customer base can still increase your profits.
Suppose you own a flower shop and your best-seller is a bouquet
that is priced at $20, and it costs you $15. Now let's say you
sell 100 of these every month for a gross profit of $500 ($5
x 100). What if you raised the price to $27, and that reduced
sales to just 60 per month? Now your gross profit is $720 ($12
x 60), on fewer sales.
Your goal then, in general, is to find the price point that
generates the most profit. That's a bit too simplistic to be
a hard rule, of course. After all, you might increase profits
in first weeks following a price increase, but then lose more
and more sales in the following months as your customers find
new places to buy more cheaply. Also, a lowering of prices could
result in enough additional sales that profits go up at first,
but if that also triggers a price-war with your competitors,
you might all make less money down the road.
Where price testing works best is with simple products and
services that are somewhat unique, so both direct comparison
and replacement are unlikely. For example, if yours is the only
dog-massage parlor in town, your concern won't be losing out
to the competition.
I was selling my "Secrets Package," a collection
of e-books, for $17 at one time. About $14.70 of that was profit
after processing fees. I decided to try a price of $27. At that
price my profit is about $23.95 each. I figured that after reading
the sales page perhaps 25% fewer people would choose to buy at
the new price. But if that happened, I would still make 22% more
profit ($1,796 versus $1,470 per 100 sales).
As it turned out, the conversion rate (the number of buyers
divided by the number of visitors) didn't change much at all.
I sold just as many at the higher price, so I boosted profits
by 63% just by raising the price. You only learn these things
There are sometimes cases where you can essentially do the
price testing in your imagination before making a decision. This
is especially true with items that have low profit margins to
For example, if you only make 10 cents on a $3.40 impulse
item in your store, you double your profit by raising the price
to $3.50. You would have to lose more than half of your sales
for this to backfire. You can probably safely assume that won't
happen without even bothering to track the results after the
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