The 1% windfall

Been working on a project recently that requires a bit of proper thinking around pricing. I've written about pricing before. Although not often. It doesn't get the same air time as other areas within marketing. But it is so important. Look at this simple, yet powerful example:

A 1% increase in price could deliver a 20% increase in profits.

How? Let's say you sell something for a price tag of €100. And after operating costs, you walk away with €5 profit per unit. Now, if you increase your price by just 1%, your new price is €101. Your profit has now jumped from €5 to €6 - a 20% increase.

Of course, we need to assume that customers will continue to buy in the same amounts as before. This assumption clearly needs testing. But it is reasonable enough. Think of any product or service that you value and are willing to pay €100 for. Would you still value and buy it if it cost €101? I'm guessing you would. I would.

The point is that price decisions affect the bottom line immediately. The example above is from a good book called The 1% windfall.

A bit more on: free versus almost free

After my amazon story, Kevin Kavanagh sent me this graph demonstrating the difference in uptake when price goes from almost free to free. One for my behavioural economics presentation.

Source is Todd Slattersten. He gave away a free ebook recently on pricing. Worth a download.

Free ebook on pricing

Pricing gets less attention on this blog. It is fascinating and I read about it a fair bit but clearly am no expert. Todd Slattersten, however is. He has written an ebook on pricing strategies. It is short and well written.

I particularly liked the bit about how pricing is by far the most effective lever that managers have in affecting profit. He refers to how a 1% increase in pricing can translate to 11% increase in profits. (It is also the easiest lever. I wouldn't advocate just upping the price to hit a quarterly target. Customers are not stupid and will eventually vote with their wallets).

Anyway, worth a download and read. Here. I found it via Seth Godin.

And if you like it, you'll probably also like The Art of Profitability too.