Pricing

Competing on Price? There’s a Better Way: Value Pricing

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Do you know everything you need to about pricing? Read this:

5 PRICING STRATEGIES: GAIN MARKET SHARE FOR YOUR SMALL BIZ

You’d like to be able to charge more for your small business’s products or services. However, you feel pressure to sell for near or below what your competitors do. Otherwise, your customers will go elsewhere, right?

“What Are Features vs Benefits of a Product?” The Difference

However, every dollar more that you can charge is (likely) an extra dollar in profit. Bringing in more revenue would help your small business with cash flow and would contribute to achieving your goals. You know that better pricing strategies exist, but maybe you’re not sure how to implement them?

Is every business forced to compete on price? Everybody knows that, to a greater or lesser degree, you get what you pay for. Most people, at some point, have “spent a little extra” but felt like they got their money’s worth.

Do you know everything that compels your customers to buy, besides price? Unless you’re selling highly commoditized products, I’d say it’s unlikely that price is the only purchasing decision.

Why not sell your products and services at a bare minimum, then? Only make enough profit to stay in business – assuming that nothing unexpected happens. Customers are the only side of the transaction that matters after all…

How do your (potential) customers make buying decisions – have you asked them? Think about this, along with what it is that you do better than anyone else. The better you understand variables, beyond price, the better position you’ll be in to maximize your small business’s revenue and potential.

What would really happen if you raised your prices? Sure, it’s probable that some customers would leave. I’m betting it wouldn’t be your best customers. In fact, for a lot of small businesses, I’d hazard to guess that earning more revenue from “good” customers and having less hassle from the “bad” customers would be a very welcome development.

Simple Small Business Cash Flow Template, 7 Week Projection

About value-based pricing

Understanding how much your customer thinks a product is worth is important. That’s why companies try to price their products with what the customer values in mind. This type of pricing is customer-focused. Companies that employ this strategy have to make sure they are meeting customer needs.

Value-based pricing is an approach to pricing products and services that focuses on the value provided to the customer rather than the time or cost incurred by the provider.

Value pricing can be contrasted with cost-based pricing. Cost-based pricing focuses exclusively on the costs incurred to bring a product or service to market.

Since the perceived benefits from a product or service can far exceed the cost it took to create it, the potential for a small business to earn extraordinary returns is very high.

How to convey value to customers?

It is important to know the value of your products and services. If people don’t think they are getting their money’s worth, then you have no power to raise the price. But if people believe they are getting their money’s worth, then they will stay with you even if you raise prices.

“How Do I Write a Marketing Business Plan?” Breaking It Down

Small businesses need to be careful with value pricing, however. If you overestimate how much the customer values the product or service then, it’s possible, that sales will suffer. It’s rare that customers will willingly overpay for something.

Emotion plays an important part in value-based pricing. It’s emotion that drives the desire to purchase a product or a service. 

Whereas value can determine price, price can also convey value to the customer. Counterintuitively, not having a relatively high price can communicate a lack of quality to customers. Even if that’s not necessarily the case.

By its very definition, we know that the more value a small business can create for customers the more it can charge. So, how to create and convey all of the value you’re providing?

Be authentic and transparent

Deliver on what you promised to customers. Both explicitly and implicitly.

Customers are customers, not employees. So, don’t expect them to spend additional time and money handling things that should have been handled by you. Make doing business with your company easy, not a chore.

Draw a distinction between you and your competitors

Your customers aren’t stupid. They know that they could spend their money elsewhere. So, there’s no point in pretending that you don’t have competitors.

Highlight where you’re strong and they’re weak. Where the opposite is true – try to shore those weaknesses up.

Frustrated With Your SWOT Analysis? 15 Templates To Download

Customize as much as possible

Every customer is unique. Even those within the same market segments.

Not every business model is built for customization. However, try to look for ways to get closer to giving your customer exactly what they want.

Follow up (gently)

If practical, follow up to make sure the customer is satisfied with their purchase. Most times, they should be. If they’re not, this is a good opportunity for feedback.

Get testimonials

Customers believe other customers. Frankly, more than they believe you. Reviews and testimonials provide valuable social proof that provides very real justifications for raising your prices and increasing your profit.

Make giving testimonials and positive reviews easy. Provide an incentive if you can.

Calculating a value-based price

Value-based pricing is a way to set a price. You start by figuring out what your product is worth, or how much someone might pay for it. This can be confusing because some people think that they should charge as little as possible.

Data about customers and their purchasing patterns can help drive value pricing decisions. Analyzing this data can help you decide what your customers value. CRM software can help with this.

The problem is – nobody is really average and every individual values different things. It’s not advisable or even practical to charge each individual a different price based on what they value.

What Is a Sales Strategy Example for a Business Plan? 6 Tips

Here is how one marketer suggested that you set value-based prices:

  1. Think about what your customer would spend that money on if they didn’t buy your product or service
    1. Find out the price of that alternative
  2. Consider the ways your product or service is better (more valuable)
    1. Settle on a monetary value for those differences
  3. Consider how the alternative is better
    1. Settle on a monetary value for those differences
  4. Price of the alternative + value of your superiority – value of their superiority

Source.

Keep in mind that this will likely only work with products or services that are direct substitutes.

Advertising Digitally: Novice Guide for Small Business

Advantages of value-based pricing

  1. Save time
  2. Increase profit margins
  3. Simplicity
  4. A focus on quality

Marketing your product or service with value in mind is a great place to start. It actually puts you into the mind of your customer. This helps ensure that you are giving them what they want.

Save time with value pricing

Most businesses are trying to get as many eyeballs on their products and services as possible. Since value pricing forces you to get into the mind of your customers, you’ll better define your customer segments. More importantly, you’ll not waste time on those customer segments that aren’t interested in your small business’s products and services.

Business Plan Demand Analysis, Four Things to Consider

Higher profit margins

Not every small business has a good grasp on its costs. This makes discounting dangerous. If you haven’t allocated all your costs in a meaningful manner, you could be losing money on sales.

Alternatively, by focusing on value pricing, your presumably getting the most revenue possible out of every sale. You still need to know your costs. However, your likelihood of maximizing profit is much higher versus an alternative strategy.

Activity-Based Costing vs Traditional – Steps & Example

Simplicity

Not every small business owner is a math or accounting wiz. That’s absolutely fine unless you are selling math or accounting services.

Once you get a feel for value pricing, you might find it simpler than, say, a cost-plus method. You might find it more intuitive. 

Promoting quality instead of quantity

Value-based pricing isn’t just about selling more products or services, it’s also about selling better products with higher quality standards.

Value pricing makes you focus on what you are providing your customers. So, you have quality on your mind. Contrast this with a discounted pricing strategy where you’re starting from a point of cutting costs (and likely quality). Even if prices are higher, your customers might appreciate a focus on quality.

Disadvantages of value-based pricing

  1. Different markets might have different values
  2. Subjectivity
  3. Time-consuming

Every decision has upsides and downsides. There are disadvantages to value-based pricing that you should consider when deciding if it is suitable for your small business. 

Different markets, different prices?

One of the most notable disadvantages of value-based pricing is that different niches will have different values. Having niche markets for customer loyalty purposes is good. But, it may also mean that certain niches may get over or underpriced. That, or you have to charge different prices to different markets. Which, can get tricky.

Challenging to set the prices

This might seem to contradict the “simplicity” advantage. But, it all depends on where your strength lies.

If you’re a more quantitative-minded small business owner, then a cost-plus pricing strategy could come more naturally to you. The nuance of a value pricing strategy might elude you.

Time and effort

If value pricing proves to be challenging to you, it could take an inordinate amount of time. Time that could be spent on other aspects of your business. Generally speaking, given the importance of pricing, even if it is time-consuming, it is most likely time well spent.

Benefits probably outweigh costs

Competing on price is a losing battle. There are only so many costs that can be cut. Plus, low margins put your small business at risk of cash flow issues and impede growth.

A little thought and a little research will help to uncover what it is that your customers value. Highlighting the value you are giving your customers will reassure them that what they spent was worth it.

Anecdotally, I’ve never seen a story where a business was regretful for raising prices. Granted, this could be an issue of survivorship. But, I think, generally speaking, raising prices (and conveying value) offers a bigger upside for your small business than downside.

Awful Marketing Results? Review These 5 Main Activities

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Every small business is concerned with marketing. Marketing activities are what drive sales. Without sales, no business is going to keep its doors open for long.

There are five general categories for marketing activities that every small business undertakes. These five primary marketing activity categories include:

  1. Market research
  2. Product and service selection
  3. Pricing
  4. Placement
  5. Promotion

Each product and service a small business sells might require different activities within these categories. The breadth and depth of the marketing activities might vary too.

Becoming proficient at each of these marketing activities will allow you to better understand your customers and solve their problems in a quick and efficient manner. A manner that makes them feel good about doing business with you.

Gather, analyze, and interpret info about your market

Market research can be time-intensive and complicated. But, it is one of those activities where even a little bit of effort is very beneficial. Market research lays the groundwork for the other marketing activities. It helps to direct your efforts in an efficient manner.

Different products and services probably serve different markets. So, you’ll want to understand the demand, market size, location, and market saturation for each of your products and services. Additionally, you’ll want to have a firm grasp on the competition and how you’ll set your small business apart.

People are diverse. Your product or service can’t be everything to everyone. You’ve got to divide people into categories so that you can better suit their needs. Categories such as gender, race, marital status, children, occupation, income, and education. Market research will help you decide which of these categories most of your customers will come from.

Armed with this powerful information, you’ll put your small business in a better position for success. Without market research, you’re left to guess about where to direct your marketing efforts. Therefore, you’ll likely waste time and money trying to reach your best customers.

https://www.youtube.com/watch?v=ReeO5P58BPo

Choose products and services based on market demand

Thorough market research helps you to refine your product or service. It will help you create the product or service that best meets customer needs. Additionally, critiquing your competitors is a critical part of market research. Deeply analyzing competitors’ products and services will help you to create something that is unique and fulfills a niche.

No matter what your product or service is, you will have competition. You can be certain of that. Even if there isn’t a product or service exactly like yours, you will still have to convince customers why yours is better than a substitute.

Offering the right products and services will make the rest of your marketing activities easier. Use what you learned from market research to create products and services that your customers are excited about. Doing so will make them that much easier to sell.

Assign value to the benefits you’re providing customers

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Pricing can be somewhat complicated. It requires analyzing you and your competitors’ products and services from many different angles. There is no perfect answer when it comes to pricing either. You probably wouldn’t know the ideal price if you saw it.

I recommend reviewing the SpreadsheetsForBusiness.com Pricing Strategies for Startups video and post. There, you can also download the Price Sensitivity Meter. With the Price Sensitivity Meter, you look at a range of prices and make judgments regarding:

  • When customers will question quality
  • When customers would consider the price a bargain
  • When customers would think the product or service is getting expensive
  • When customers would consider the product or service too expensive

Of course, you can’t talk about pricing without considering costs. But, be sure not to fall into the trap of pricing strictly off of costs. There are a lot of other factors to take into consideration.

However, unless it’s done with a specific purpose in mind, make sure you are not pricing below your costs either. That’s not a strategy that can be maintained for very long.

Get products and services into customers’ hands

marketing activity place
Credit: 365 Careers

Placement has to do with how a small business delivers products and services to its customers. Not every company deals directly with the end-user. Sometimes, intermediaries such as distributors, wholesalers, or retailers are utilized.

If you are not dealing directly with the end-user, then you are, in essence, partnering with another business in order to get your products and services sold. Partnering with another business can allow you to scale up your marketing activities. But, the obvious downfall is that you lose a certain amount of control. In fact, your partner might also be partnering with your competition.

Just as with product (service) selection and pricing, you’ll want to keep your end-user in mind. Put yourself in that customer’s shoes and think about how your placement and distribution decisions affect the value that they receive.

Set your business apart from the competition

With a firm understanding of the other four marketing activities, you should be prepared to stand out from the competition with your promotional activities.

Promotion includes advertising, of course. But, it also includes sales, incentives, and any other direct contact you have with your customers.

Keep that in mind – anytime you are dealing directly with leads, prospects, or the public in general, you are engaging in promotional activities.

https://www.youtube.com/watch?v=Mco8vBAwOmA

Marketing can have up to a 275% ROI

Source

Any action your business takes to boost sales (and revenue) is a marketing activity. Having a great product or service is something to be proud of. However, if you don’t make prospects, leads, and existing customers aware of them, then it’s all for nothing.

The general categories listed above can be broken down into more specific activities. Marketing is a multi-faceted and complex subject. Most people aren’t an expert at all things marketing. Get help where you need it and be sure to review each activity periodically to make sure you’re getting the most out of your marketing efforts.

“How Do I Write a Marketing Business Plan?” Breaking It Down

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“How do I write a marketing plan?” Start by looking internally at your unique selling proposition and your pricing. With that foundation, you can be proactive and confident in your advertising, sales, and distribution strategy. All the while, you’ll want to be mindful of what the competition is doing so that you can copy what works and avoid what doesn’t.

An annual marketing plan and the marketing section of your business plan are essentially the same things. They’re both a plan of action for making more sales and bringing in more revenue. The latter is written when you’re getting ready to launch your business. The former can be written at any time; but, ideally, would be reviewed and revised at least annually.

The first thing to address in your marketing plan is your unique selling proposition (USP). This is the foundation of all of your other marketing.

Next, the focus will turn to pricing. Pricing has an enormous effect on revenue. In fact, if your small business’s pricing is on point, that can probably make up for other shortcomings in your marketing plan.

With those issues addressed, you can now turn your focus to other activities that will directly impact customers. Specifically, your sales/distribution and advertising/promotion. Your business’s sales and distribution plan will involve direct contact with the customer. Conversely, your business’s advertising and promotion plan will be comprised of more indirect interactions with your prospective customers.

While working through the sections of your marketing plan, it’s critical that you refer to quality market research. When you were drafting your business plan, you probably had extensive market research handy. If you don’t have up-to-date market research at this time, I think it would be beneficial to brush up on that before writing a marketing plan.

What is a unique selling proposition (USP) in marketing

Every company has something unique about them. It might be in their products or services. Or, it could be some other aspect of their business. 

Of course, your business is no exception. My advice, when considering your unique selling proposition, is to think about what your business is good at. What’s the one thing you do better than anyone else? It can be anything, even if it’s not an activity that directly affects customers.

unique selling proposition venn
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If it’s an activity that doesn’t directly affect your customers, think about the second and third-order effects of that activity. Surely, you’ll discover that activity ultimately benefits customers in one way or another. Every activity that takes place within your small business (should) revolve around your customers. After all,  they’re the ones that drive revenue. Without revenue, you wouldn’t bother doing any of those activities.

In addition to clarifying what’s unique about your company, you’ll want to revisit your products and services to solidify what benefits they provide your customers. Benefits are the reason that people buy products and services. make sure you’re not listing features during this exercise.

Customers don’t buy a saw because it can cut wood. They buy a means to get a board that’s exactly the right length. This is a good illustration of the distinction between the features and benefits

With a firm grasp on your USP and the benefits of your products and services clearly in mind, reviewing your pricing strategy should also be easier.

What are your competitors’ unique selling propositions?

Now, it’s time to think about what it is that your competitors do best. Nobody is the best at everything and everybody is the best at something. Even your less-than-stellar competitors have something that they do very well.

In a perfect world, your business would serve as much of the Total Obtainable Market as you wanted. As it stands, you’ll probably have to wrestle a share of that market from your competitors. Therefore, it pays to know what you’re up against.

Understanding your competitors’ unique selling propositions will help you with sales in particular. When leads and prospects bring up your competitors, you’ll be able to acknowledge what they do well. This will convey authenticity. You’ll also be prepared to counter with why your unique selling proposition makes your products and services a better fit for the customer.

What are pricing strategies in marketing?

Pricing is a tricky subject. Many entrepreneurs fear that if they price $.01 too high, they’ll not make any sales. Alternatively, it always nags at them that they may not be pricing high enough and therefore leaving revenue on the table.

To complicate matters, pricing is very subjective to customers. Presented with the same price, one customer might think a product or service is outrageously overpriced. Another might consider it a bargain.

I made an extensive video and a valuable spreadsheet to help small businesses solve the problem of pricing. Check that out if pricing is giving you trouble.

womens product price sensitivity meter
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There is a multitude of pricing strategies that your small business can employ. Many of which can be combined together.

How much you decide to scrutinize pricing is up to you. However, I always suggest that if you’re weighing different price points common to go with the higher price. You can always improve your sales tactics and it’s easier the lower prices via a promotion than it is to raise them.

Also, though I don’t advocate for pricing strictly on the basis of costs, it is important to understand your costs so you can be certain that you’ll meet your margin goals. Therefore, this is also an excellent time to make sure your costing is accurate.

What are your competitor’s pricing strategies?

Just as with the USP, you’ll want to reflect upon how your competitors price their products and services.

Think about how their pricing lines up with their USP. Does it make sense? Do you have any competitors that always insist on competing on price? Yes, that can be frustrating. But it also likely means that they don’t have much of a marketing plan.

In turn, maybe you can further distinguish your business while they fall back on the only trick they know – lowering their prices. As a result, your business will strengthen and theirs will weaken.

How will advertising be used in your marketing plan?

Your USP will give your advertising focus. It allows you to deliver a consistent message to prospective customers. The number of avenues that you can use for marketing is almost limitless.

If you’ve been in business for any amount of time, then you probably have some experience with advertising. This is a good time to “play Battleship” – so to speak.

Battleship_game

What I mean by “play Battleship” is – think about what’s worked well for your small business, and expand upon that. Once a particular opportunity has been fully exploited, you can change your medium, message, or any other variable until you get another hit.

When you get another hit, only make small tweaks until that opportunity is exploited. And so on…

Don’t let your marketing stray too far from your target market, however. Your entire business is built around your target market. A target market can grow or change over time, but that’s a longer-term undertaking. Advertising can be more flexible and nimble.

A thorough analysis is worthwhile here. While, yes, there is such a thing as branding and it has its value, advertising should provide you with a good (and quick) return on investment. Hold your advertising, and yourself, to high standards. Advertising is expensive and you don’t want to be throwing those dollars away.

Analyzing competitive advertising

This might be the easiest part of the marketing plan to analyze what your competition is doing. After all, the point of advertising is to get as many eyes on it as possible.

That being said, it’ll be damn near impossible to know what your competition’s ROI is on their advertising. However, being an expert in your industry, you’ll probably know effective advertising when you see it. So, when it comes time to play Battleship again, you’ll have a good idea of where to start.

How will sales compliment your marketing plan?

Marketing turns people unaware of your product or service into leads and prospects. From there, it’s the responsibility of the sales organization to turn leads and prospects into customers.

sales-conversion-funnel-illustration
Credit: pinterest.com

Not every business will employ direct salespeople. However, keep in mind that any employee which has contact with customers is a defacto salesperson. Make sure that these people are adequately trained and are not leaving sales on the table.

You can’t fix what you can’t measure. So, be sure that you have the means to measure your conversion rate along the entirety of your funnel. Also, are your people properly incentivized to make sales? Obviously, there’s no law that says you can only pay incentives to salespeople. Paying a commission or a bonus is a variable cost that can have a high return on investment.

Speaking of costs, consider your costs tied to sales. Be wary of fixed costs. With high fixed costs, you’re starting in a hole. You have to reach a certain volume in order to break even.

If you’re confident that high volumes can be achieved, then that could be okay. If you’re not as confident, or your business has a high amount of financial leverage (debt), then you should probably steer clear of high fixed costs.

Performing a competitor sales analysis

Obviously, it’s difficult to know what your competitors’ cost structures are. Do they have heavy fixed costs or mostly variable costs? If they’re a high-volume competitor, hopefully, their costs are mostly variable. Conversely, if they’re low volume, you should hope that their costs are fixed.  

You’ll have to work with whatever information you can gather. It’s probably easy enough to discover if they pay their salespeople commission, and how much that commission is. You can probably also get an idea of what kind of sales training they offer.

The point here is to get an idea of where your small business stands in terms of its potential for sales success. You want to balance between being someone that the best salespeople want to work for, and your own bottom line.

What is your distribution strategy?

Making sales is great. But if you can’t get the product to the customer, what’s the point?  Not to mention the negative goodwill and customer dissatisfaction that comes with distribution interruptions and delays.

Customers don’t want to give you money just so you can make a hassle for them. They expect your customer service to be such that they don’t have to stress over getting the value that you promised them.

Authenticity, timeliness, and redundancy are the name of the game here. Communicate with your customers clearly, make it a priority to get the product or service in their hands, and have a back-up plan.

omnichannel-distribution
Credit: blog.magestore.com

Obviously, utilizing the power of the internet opens you up to markets you wouldn’t have otherwise had access to. This is an opportunity that comes with a lot of competition, however. So, if you plan on selling via the internet, you had better specify elsewhere in your marketing plan how you’re going to stand out from the competition.

Finally, don’t forget to factor these distribution costs into your pricing analysis. They’re, more or less, direct costs so they should be easily allocated.

Your competition’s distribution strategy

By now, you get the point. You want to look at what your competition is doing and decide what strengths you should emulate and what weaknesses you should avoid or exploit.

If your competition places some of the burdens of distribution on their customers – that’s something that you want to highlight in your sales, advertising, and promotional efforts. That is, assuming, that you don’t do the same.

Also, if you can put a distribution strategy in place that opens up a larger market than your competitors, then the likelihood that you can better them will increase significantly.

How do I write a marketing plan?

Hopefully, clarifying your unique selling proposition and fine-tuning your pricing will lay the groundwork for your advertising, sales, and distribution to be successful. Additionally, by keeping a close eye on your competitors’ marketing strategy, you can put your small business in a position to gain market share. Hell, you might even know their marketing strategy better than they do by the time you’re finished.

What this should translate into, is the maximization of sales and revenue for the coming year. That, along with effective cash management, will put you in a position to not only grow your small business’s earnings but to also take advantage of any other opportunities that present themselves.

FREE 2 Page Auto Repair Shop Marketing and Sales Business Plan

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The marketing and sales section of your business plan is where you explain your strategy for bringing in sales. It is critical because making sales is paramount for business success.

The following example draws heavily from the previous two posts on the subject.

In this example, I’m using a fictional startup auto repair and maintenance shop we’ll call Auto Repair, Inc.

Feel free to copy this example and tweak it for your needs.

Marketing strategy

Auto Repair, Inc.’s (ARI) marketing strategy aims to earn a high return on investment (ROI) on marketing efforts. The marketing strategy is rooted in the marketing theme.

The goal is to carefully consider and continuously review the marketing strategy – making adjustments where necessary. Whatever strategies are implemented, adherence will be enforced.

Target market

As described in more detail in the market analysis section, ARI’s target market can be summarized as follows:

  • Households in the same or bordering ZIP Codes as the service facility
  • Male
  • Age 21 years and over
  • At least 1 vehicle available to the household
  • Household income ranging from $40,000 to $199,999 per year

Marketing theme

ARI’s marketing will adhere to a consistent message highlighting the benefits of using their auto repair services and their unique selling proposition (USP).

ARI will hold itself to the highest standards of honesty and integrity. The benefit to the customer will be knowing that they aren’t being deceived and not being charged for unnecessary repairs. The intent is to make ARI the first choice for automobile maintenance and repairs in the local market.

Furthermore, by paying for the expedited shipping of parts that aren’t in inventory, ARI will be able to offer its customers timely service. The benefit of expedited shipping is that customers won’t be inconvenienced for any longer than necessary.

It is these two things – honesty, and timeliness, that comprise ARI’s USP. This is what ARI will strive to be known for. It is what will make them unique among their competitors.

Promotional strategy

It is ARI’s intent to focus on three promotional strategies at any given time. The ROI for these promotional strategies will be measured to the extent possible.

Flexibility will be a priority. The promotional strategy that is performing worst will be replaced or adjusted upon quarterly review. This strategy should result in a continually increasing marketing ROI.

All promotional efforts will emphasize the previously mentioned marketing theme.

The following are the initial strategies ARI intends to employ:

Sponsoring local community events

ARI will focus on community events in the local metropolitan area that pertain to automobiles. These events will be sponsored, if possible. A presence will also be maintained at these events where coupons and promotional materials will be handed out.

Social media

ARI will maintain a strong social media presence. In order to increase the likelihood of effectiveness, ARI will outsource this activity to a local marketing firm. Additionally, ARI will employ the use of exclusive codes in social media promotions which will aid in tracking the scope and scale of social media efforts.

Referral program

ARI will implement a referral program that will strongly incentivize current customers to refer new customers. Under this referral program, if new customers state that they were referred by an existing customer, the existing customer will receive a 50% discount on their next oil change.

Technology

ARI will rely heavily on technology in order to leverage and measure the effectiveness of their promotional strategies.

Social media, as mentioned previously, will play an important part of ARI’s marketing strategy. Initially, social media will serve as one of the primary means of promotion.

Additionally, analytical tools will be relied upon to gauge the effectiveness of ARI’s marketing and sales strategies.

Finally, customer relationship management (CRM) software will be critical to maintaining a reliable database of prospects and existing customers. Plus, it will facilitate the collection of relevant information and aid in the overall marketing and sale strategy.

Pricing strategies

Carefully considered pricing is critically important to ARI’s success. Automobile service and repair is, unfortunately, viewed as a commodity. It is ARI’s intent, through an effective marketing strategy, to differentiate themselves from the competition and lessen the commoditization of their services.

ARI’s initial pricing strategies will be as follows:

Bundle pricing

A detailed analysis will be conducted to determine attractive, yet profitable, discounts that can be provided to customers who purchase two or more services concurrently. These dynamic pricing models will be programmed into the CRM software and applied automatically.

Psychological

Psychological pricing will also be used in promotional materials. Where practical, prices will be adjusted to the nearest $.99.

Sales strategy

ARI’s sales strategy revolves around a flexible, practical, and transparent process that makes all employees continuously aware of the company’s progress towards its sales goals.

Process

All of ARI’s employees will be coached on the sales process which revolves around its marketing theme. The marketing theme emphasizes customer service, honesty, and timely service.

This theme will be highlighted in all customer interactions. Particularly through the use of transparency in discussing repairs. Also, through emphasizing the expected time of maintenance and repairs.

Continuous learning

Training will be conducted quarterly for all employees and on an as-needed basis individually.

During training, the tenants of the marketing and sales strategy will be highlighted. Employees will be given the opportunity to ask questions and discuss scenarios. At this time, there will be an opportunity to address any necessary issues, shortcomings, or changes. All of this is done in an effort to reinforce the strategy, and to be flexible as needed.

Sales goals

At ARI’s quarterly sales training, sales goals for the company as a whole will be stated.

Additionally, the sales goals, and progress towards them, will be made clearly visible to all employees throughout the quarter. Every employee will understand the part they play in contributing to those goals.

Sales goals will be tied to the annual strategic plan, and, more specifically, the operating budget.

Sales goals will revolve around total revenue, and be broken down into monthly, weekly, and daily milestones.

Sales forecasts

Sales forecasts are covered in detail in the financial projections section of the business plan.

Pricing Strategies for Startups and Established Businesses + Spreadsheet [VIDEO]

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Video transcript

00:06 hey guys back here with another video
00:10 finally most of my previous videos on
00:15 most of my recent videos have been on
00:17 the subject of QuickBooks Online and go
00:20 in a little different direction with
00:22 this one actually I’ve written quite a
00:25 bit on the website about business plans
00:30 and most of that so far is focused on
00:34 market research for a business plan and
00:37 this is kind of the last piece of
00:39 content on that particular subject and
00:43 from here it’s going to move on to move
00:49 on to writing the business plan in
00:51 earnest but anyhow rather than write
00:55 this one out as a blog post you know
00:58 those were kind of hit and miss as far
01:00 as traffic goes I thought I would just
01:01 do it as a YouTube video and see what
01:06 kind of reception that got and that’s
01:08 what brings us here so like I said this
01:10 is
01:12 part of the part of market research an
01:16 important part of business plans and in
01:19 particular it’s about pricing strategies
01:22 for for startups and really this will
01:25 also work for existing businesses too
01:27 you know you you probably have a little
01:30 more flexibility when you’re settling on
01:34 pricing as a start-up than you do as an
01:36 established business it can be kind of
01:39 hard to pivot into something else when
01:41 your customers come to expect a
01:43 particular particular pricing strategy
01:46 from you so but you know nevertheless if
01:49 you have an existing business and are
01:52 interested in the tool that I may do
01:55 along with this which we’ll get to in a
01:57 little bit and the strategies and that
02:00 there’s a like I said here 16 of them to
02:03 think about and let’s get into it here I
02:06 like to start every video I have with
02:11 kind of a quick answer or summary what
02:14 I’m gonna go over and doing the same
02:18 here so pricing will have a huge impact
02:23 on your business you know that’s your
02:26 probably like and no kidding
02:29 you probably already knew that and you
02:32 know but I had read somewhere wouldn’t
02:35 as kind of doing the research for this
02:37 video about how you know like a 1%
02:40 change in pricing can have up to an 8
02:43 percent change in sales you know and it
02:48 really is if you can
02:51 increased prices by 1% you know that can
02:55 have a depending on the the mix of
03:00 products you’re selling you know that
03:02 can have an enormous effect on enormous
03:06 effect on your on your sales and
03:08 therefore your profitability you know
03:10 keep in mind as we go through this that
03:12 not all strategies are going to be
03:14 appropriate for your business you know
03:17 there’s 16 of them it’s gonna seem a
03:20 little overwhelming and you know don’t
03:25 think that every strategy you know you
03:29 have to work in to your your particular
03:33 business somewhere you know it’s not the
03:35 case it might just be one strategies
03:37 right for you you know it is a bit of
03:40 information overload but I give you all
03:42 this information because you know so you
03:47 can be aware of this about every
03:50 strategy I was able to find I don’t know
03:51 that it’s every strategy period in terms
03:55 of pricing but it’s a quite a few of
03:59 them and a lot a lot to consider but you
04:03 know just you some will jump out at you
04:06 as being practical for your business and
04:08 you know those are the ones you want to
04:10 kind of move forward and maybe look at
04:12 implementing and keep in mind that they
04:14 can be combined and different strategies
04:17 can be used on different products and
04:19 services or different types of customers
04:23 and you know
04:27 things are in the small business world a
04:33 little a little crazy right now I mean
04:36 first potentially he gets shut down for
04:39 a couple of months on account of kovat
04:42 19 and now some small businesses
04:46 fortunately not many in the grand scheme
04:49 of things but you know unfortunate for
04:52 those that it’s impacted or victims of
04:55 rioting looting and other sorts of
04:59 things you know they’re paying the price
05:01 for something that they had no you know
05:06 had no part in no injustice that they a
05:09 pardon and you know of course that
05:11 stinks and the reason I bring all that
05:13 up is it’s you know it’s been a an
05:15 insanely volatile year to be a small
05:18 business owner and you know so as we go
05:22 through these strategies what I’m
05:24 getting at here is that it it’s
05:25 important I think you know not just in
05:29 pricing but in everything to start to
05:31 think about implementing procedures
05:37 policies strategies you know whatever
05:39 you want to call them just you start
05:40 start doing business more flexibly with
05:45 more flexibility and
05:49 you know be able to pivot you know they
05:52 not get you as RIT as rid of as much
05:56 rigidness as you can because it’s I
05:59 don’t know manda it’s a it’s been a
06:01 crazy year and it’s a crazy world and
06:04 maybe this is you know maybe we’ve seen
06:08 the worst of it for a while that maybe
06:10 we haven’t you know I honestly don’t
06:13 know I wish I did but you know like I
06:16 said I think it’s important to move
06:19 forward and the lessons that can be
06:20 learned from this is that yeah the
06:23 rigidity just won’t won’t work so you
06:26 know every business is different so I I
06:29 hate to speak in such generalities you
06:32 know if you’ve watched any of my other
06:33 videos ready and other my posts that you
06:37 know I hate I like to get specifics
06:40 where I can or you know concrete
06:42 information where I can and not not deal
06:45 in abstraction as much because you know
06:47 that doesn’t help you I mean it might
06:49 give you a little something to think
06:50 about but you know people people want
06:52 answers and you know so I beg your
06:56 pardon for that but you know that’s the
07:01 best way I can phrase it now you know
07:04 just you know with everything else but
07:09 in particular since we’re on the subject
07:10 of pricing strategies here just to
07:12 gravitate more towards the ones that are
07:14 more that are more flexible if you can
07:19 then kind of we go through the
07:22 strategies we’ll we’ll get to a tool
07:24 that I made in Google sheets so you can
07:27 download it for free it’ll be on I
07:30 always make a post of the videos when
07:34 I’m done and where I’ll have the slides
07:38 here and then transcript from the video
07:41 the video itself and in cases like this
07:44 when I reference a particular tool that
07:48 I’ve made a spreadsheet
07:49 this is spreadsheets for business after
07:51 all anyways I’ll make it available on
07:54 there and you can go and download that
07:57 and this is a it’s something called the
07:59 price sensitivity meter it was a concept
08:01 that I’d come across
08:02 that I thought was interesting and
08:04 potentially helpful and what it’ll do in
08:07 essence is give you a range of
08:09 acceptable pricing you know kind of kind
08:12 of give you a some numbers start working
08:15 with and then you can implement the
08:16 strategies that are appropriate from you
08:19 for you from them and like I said
08:23 transcript and slides all that business
08:25 will be on spreadsheets for business
08:27 comm soon
08:31 so you know pricing is a complicated
08:37 subject you know it seems relatively
08:40 straightforward and will be more
08:42 straightforward for some businesses than
08:44 others but you know it’s a complicated
08:48 thing people get hung up on it it’s a
08:52 you know there’s just a lot of factors
08:55 at play you know that there’s course
08:57 competing on price with your competitors
08:59 but then there’s the you know your value
09:02 properties proposition versus your
09:04 competitors your you know unique selling
09:08 proposition USP Matt how you position
09:11 yourself the customer service quality
09:14 and all those things factored in and you
09:18 know really it if you look back at the
09:22 last year two years ago five years ago
09:25 whatever I mean you know for a little
09:29 thought experiment look back at those
09:31 years and ask yourself you know if I had
09:36 increased prices I mean again and maybe
09:39 just a little bit you know 1% bump here
09:42 a couple dollars there you know if
09:45 you’re a super small business couple of
09:46 dollars on the right items might have
09:49 you know might have been the difference
09:52 between a mediocre year and a bumper
09:54 year might have been the difference
09:55 between you know ending up in red and
10:00 ending up into black it’s you know it’s
10:05 completely possible so you know it is a
10:10 complicated subject and the point of
10:12 this is to hopefully an army with a
10:15 little information excuse me
10:20 army little information to kind of see
10:24 through the fog and iron you know get a
10:27 firm grasp on what your pricing strategy
10:31 should be and again I’ll reiterate not
10:33 all these strategies are going to apply
10:35 to you you don’t have to work every
10:37 single one into the
10:40 into your business okay and pressing can
10:45 being overwhelming oops back pricing can
10:49 be overwhelming touched on that earlier
10:51 a lot of things to consider dismiss
10:53 strategies that won’t work you know I
10:56 would also urge you to where possible to
11:00 air on the higher side of pricing you
11:03 know if you’ve ever done any reading on
11:05 the subject or research you know you’ve
11:08 you’ve seen similar sort of things said
11:11 and it’s it can feel tough to do you
11:13 know cuz II you nervous about losing
11:16 sales on account of pricing and you know
11:21 but it’s always easier to reduce for
11:23 promotions and you know hell you can
11:25 even run promotions fairly frequently
11:29 speaking of which I have a post on
11:31 promotions on spreadsheets calm
11:34 spreadsheets for business calm I wish I
11:37 owned spreadsheets calm but I don’t
11:39 spreadsheets for business about pricing
11:44 in QuickBooks Online you know running
11:47 promotions in that and then one beyond
11:49 that which also comes with the
11:51 calculator in regards to you know just
11:58 running promotions in the effect it can
12:00 have and everything so it’s like a
12:01 little handy little tool to estimate
12:04 what the effects might be
12:10 you know and I mentioned also earlier
12:13 that you can use different strategies
12:16 for different products and services you
12:19 know different categories different
12:20 customers you know again it be be
12:26 flexible you know not not rigid so
12:31 consider all these strategies we’re
12:34 gonna go through and use the
12:36 accompanying tool play around with it
12:39 download it you know and then armed with
12:43 all that information rely on your
12:45 expertise your intuition and you know be
12:49 willing to make some mistakes some trial
12:51 and error in terms of pricing it’s you
12:53 know mistakes are gonna be made it’s
12:57 it’s like budgeting you know we’re
12:59 forecasting I’ll tell you right off the
13:02 bat you’re not gonna get not gonna get
13:05 it exactly right forecast your exact
13:07 unit sales exact revenue exact costs
13:10 exact labor needed you know marketing
13:13 that the point isn’t to you know this
13:17 isn’t school you’re not graded on how
13:18 close you get to its actual you know
13:21 it’s really just to go through the
13:23 thought experiment of the whole thing
13:26 and to you know just think at everything
13:30 from from different angles and net and
13:32 then you know so don’t don’t worry about
13:34 making mistakes with your pricing when
13:36 you know try something and learn your
13:41 lesson from it and if it’s good keep it
13:43 if it stinks then do something different
13:48 okay so we’ll get into the strategies
13:52 here
13:58 all right and I’ll try to go through
14:00 them fairly quick we’re about 14 minutes
14:02 in now and you know I realize that
14:08 longer videos people people lose
14:10 interest and I guess I can’t blame him
14:14 so like I said I’ll try to go through
14:15 strategies pretty quick and then we’ll
14:17 get we’ll get to the touch on a couple
14:22 of things and get to the tool how to use
14:24 it okay so the first strategy is price
14:27 leadership okay
14:29 this is where basically a single
14:31 business would dictate market price and
14:33 this one isn’t gonna be really practical
14:35 for a startup unless it’s a brand-new
14:38 and brand-new market brand new items
14:42 something nobody’s seen before maybe
14:44 that’s cases you startup probably not
14:46 you know but you know again I just want
14:50 to make you aware of it so this is
14:51 something that oligopolies would do
14:53 which is a similar to monopoly except
14:55 they’re a couple of firms rather than
14:57 just one and this is like Airlines
15:02 wireless carriers film TV music you know
15:05 basically they dictate the market price
15:08 they have enough control over the market
15:10 to be able to do that and any little
15:13 player that wants to come in and get
15:15 involved with that or any other business
15:16 that wants to try to come in and take
15:19 some of that market share has got a you
15:21 know gotta be aware that the the leader
15:24 of the market is dictating the price so
15:28 premium pricing this is
15:34 by companies selling high quality goods
15:36 or services and that might be you that
15:39 might be your business model and you
15:41 know luxury items in that and you know
15:43 it’s not always that the items are
15:46 luxury you know luxury is kind of a
15:51 flexible term but you know like some
15:53 clothing brands name-brand clothing
15:55 sometimes is a very low quality you know
15:58 and you you can buy you know whether
16:02 it’s shirts pants accessories whatever
16:05 from a name-brand and it’ll fall apart
16:07 right away you know it’s not it you
16:10 really you’re paying for the name so
16:12 that’s why I say you know Oh having a
16:15 brand name is an instance where you
16:17 could still use premium prep premium
16:20 pricing if you’re not selling
16:22 technically high-quality goods or
16:25 services you know the customers are
16:27 paying for the status the paying for
16:28 that name okay so some examples of that
16:31 and this is not to say these things
16:32 aren’t quality per se but they aren’t
16:34 it’s not a given luxury cars and
16:39 designer clothes and Apple products are
16:41 a couple of examples that I was able to
16:43 find so the opposite of premium pricing
16:48 is economy pricing this is where you’re
16:51 doing bottom dollar pricing okay and it
16:54 depends heavily on selling a high-volume
16:57 products um you know to make up for
17:00 those low margins you you know you’re
17:03 gonna have high margins probably premium
17:05 pricing low margins with economy so you
17:07 got to sell a lot with economy so in
17:09 order to get away with economy pricing
17:11 you’ve got to have a good understanding
17:13 of your cost okay because those margins
17:16 are so low you can’t afford not to
17:18 understand what it takes for you to get
17:21 a product to market in terms of cost
17:23 okay because you you could either you
17:29 could price it obviously too low and be
17:32 selling at a loss and not knowing it or
17:35 conversely you could be pricing it too
17:38 high and leaving room for other
17:45 competitors
17:46 with you know a better grasp under cost
17:49 and can beat you on price because that’s
17:50 what you’re competing on is price you
17:52 know when you’re doing economy pricing
17:54 and a couple of examples that are warm
17:56 Walmart and private labels like you’d
17:58 find at the grocery store next one here
18:02 is premium decoy pricing this one gets a
18:04 little more advanced not quite as
18:06 straightforward so it’s a similar to
18:09 premium pricing
18:11 but it uses a similar product or service
18:16 at a much higher price so it’s priced on
18:22 the high end with a healthy margin okay
18:24 something to use a premium decoy pricing
18:27 you got you got an item a okay with the
18:30 with a healthy margin and that’s the
18:32 item that you really want to sell okay
18:34 but then you bring in item B which is
18:40 similar similar enough for a comparison
18:43 you know maybe with a little added value
18:46 but then it’s just priced through the
18:48 roof I mean it’s a ridiculously
18:51 overpriced and so what this does is it
18:54 plays on the concept of single option
18:55 aversion this is the name of the term
18:57 and it basically says that you know
19:02 customers are less likely to choose an
19:05 attractive product or service if there’s
19:06 nothing to compare it to so you know if
19:11 your business model is such that your
19:15 business is that you it kind of revolves
19:17 around one product you know that it
19:21 could present an issue for you when it
19:23 comes to marketing and sales because
19:25 there’s nothing to compare it to when
19:28 you’re when you’re pitching it to a
19:30 customer they you know people need
19:33 context we make sense of the world by
19:36 how we compare things to each other
19:37 things are things are better worse
19:42 I mean really you know we we categorize
19:45 everything in that way this car is
19:47 better and everybody has a different
19:48 opinion of course there’s no that one
19:50 universal opinion but you know in this
19:52 instance you’re you’re playing on that
19:55 kind of human tendency to just if you
20:01 know if you’re just presented with one
20:03 option well I don’t know is this a good
20:04 value or a bad value you know I’ve got
20:07 I’ve got nothing to compare it to so if
20:10 that’s your type of product you might
20:11 consider something like this add some
20:14 token bells and whistles price it way up
20:17 so then the item you’re actually trying
20:18 to sell looks good by comparison okay
20:21 they’re like damn this is a value you
20:24 know because this other thing that has
20:25 just a little bit more you know is
20:30 priced at this so this must be a good
20:32 value you know that it’s a it’s a little
20:35 bit of marketing trickery there so an
20:38 example the Apple products will do it a
20:44 little bit to where they’ll and I made I
20:47 put a copy of the link that I referenced
20:50 there at the bottom but Apple products
20:53 are have in the past I don’t follow
20:55 Apple that closely but like like a phone
21:01 with a little bit more storage will be
21:04 priced disproportionately high you know
21:08 to getting a little more value and but
21:12 they’re you know but they’re making it
21:14 bad option unattractive it’s there if
21:17 somebody wants it I mean somebody will
21:18 buy it because they want the best that
21:21 quote-unquote the best but you know
21:25 they’re really trying to sell the one
21:27 the more reasonably priced when the
21:29 middle the quote-unquote middle you know
21:31 the good better best they’re trying to
21:32 sell the better version so and then the
21:36 Economist is another classic example and
21:39 you’ll see quite a bit if you never
21:41 delve into this type of research in this
21:44 subject in terms of pricing that it’s
21:48 like
21:49 they sell the electronic subscription I
21:53 hope I’m not misquoting this and then
21:55 the electronic for less the print
21:56 four-way hider well hardly anybody wants
21:59 the damn print when I can just get it
22:01 electronically you know so you’re like
22:05 well why would I pay that much more this
22:08 electronic subscription alone looks much
22:11 more attractive so kind of went on about
22:13 that one for a while but it’s a you know
22:15 it’s kind of a fascinating thing I think
22:17 because of them you know the
22:20 psychological element to it okay so a
22:25 similar pricing strategy is bundle
22:29 pricing
22:32 so you’ve seen this no doubt I know my
22:37 internet company does it TV and Internet
22:41 bundled it’s you no way you pay him way
22:44 less for each you got automobiles with
22:48 extras you know sunroof leather seats
22:56 bigger engine the you know the GT model
22:59 whatever it may be they’re gonna you
23:02 know price it together an automobile you
23:05 can’t necessarily go get a sunroof extra
23:08 aftermarket I mean technically you could
23:10 I suppose but you know and that’s not
23:12 practical most people but excuse me the
23:16 games will bundle also you know Nintendo
23:21 Sony they’ll all sell you know whether
23:24 it’s a bundle of games or bundling the
23:27 console with the games so it you selling
23:32 items together and you selling them at a
23:33 lower price than you would sell them
23:34 separately and it gives a customer
23:37 better value customer recognizes that
23:39 makes attractive but when it does for
23:42 you then is also increased the sales
23:44 volume so included another link at the
23:46 bottom they’re gonna read a little more
23:48 about where I got those examples from
23:51 okay value-based pricing this is based
23:58 on you know and keep in mind like I said
24:01 these these can be combined they’re not
24:05 all mutually exclusive you don’t have to
24:07 pick just one so don’t just want to
24:10 reiterate that so now you base pricing
24:13 is where you price something based on
24:15 how much value your product or service
24:17 provides basically you know what’s the
24:20 utility it gives the the person who
24:23 purchased it you know if you’re selling
24:28 something that gives every every
24:32 customer infinite happiness for the rest
24:34 of your life and you’re selling it for a
24:36 dollar
24:36 well you’re not using value-based
24:38 pricing okay that’s that’s worth a lot
24:42 of money you know to have infinite
24:45 happiness for the rest of your life you
24:47 know you could charge almost anything
24:49 for that
24:52 so it’s it’s basically pushing the
24:55 threshold of what the customer is
24:56 willing to pay based off of your value
24:59 proposition similar to project pricing
25:01 which we’re covering a little bit it’s
25:04 you know cost is not critical in the
25:07 sense that you still need to be making a
25:09 profit of course you know there you
25:12 won’t be in business for long but it
25:14 might be that the value of what you’re
25:17 selling is not much above your cost well
25:21 then you need to look at lowering the
25:23 cost or increasing the value of course
25:26 flipside you know the margin might be
25:28 really big so not it’s not to be
25:32 confused something with another one we
25:35 talked about earlier value pricing of
25:37 course that was economy pricing where
25:39 you know you’re selling low margins
25:41 high-volume okay so in this case it
25:45 could be you know that luxury
25:46 automobiles would fall but fall under
25:49 that category like I said some might be
25:53 overpriced others might be priced at the
25:55 value they provide you know they’re
25:56 high-quality automobile that oh you know
26:00 that is reliable and beautiful and
26:03 everything you want
26:05 and you know it’s priced accordingly but
26:08 you if you’ve got the money you pay that
26:10 because that’s what it’s worth to you
26:12 another example might be professional
26:15 services or consulting okay you know
26:19 particularly those for a business if
26:22 they’re providing a lot of value if
26:23 professional service is going to help
26:25 you make a million dollars more in sales
26:27 well and charging you a hundred thousand
26:29 dollars potentially is it’s well worth
26:33 of you know that’s what it’s worth I
26:35 mean you’re still earning an excellent
26:37 return
26:40 this one’s psychological pricing this is
26:42 one obviously it can be easily combined
26:44 with others it’s a we’ve all seen it you
26:47 see it everywhere you know we think we
26:51 can see through it but you know research
26:53 says that it that it works that they
26:55 sell businesses sell more products and
27:00 services when they’re priced with that
27:04 99 cents eighty-nine cents or just you
27:07 know just shy of a certain threshold you
27:11 know it’s not by seeing a one at the the
27:19 beginning of the 1999 price it you know
27:21 I get you know again I’m sure you think
27:25 you see through it I think I do but you
27:27 know apparently not everybody does but
27:30 you know if I seen that one instead of a
27:31 two instead of just pricing is straight
27:33 twenty you know it they’re more they
27:38 feel like they’re getting more of a
27:40 bargain so you know you sacrifice very
27:43 little in revenue to potentially sell a
27:46 lot more so definitely a strategy worth
27:50 considering and like I said we see in
27:52 retail at a time and see with
27:54 automobiles you know car price to
27:57 nineteen thousand something 29,000 some
28:01 thirty nine thousand something you know
28:02 it’s a frequently relied upon strategy
28:08 okay
28:11 tration pricing
28:15 so this is a this is a potential
28:19 strategy to use the first startup it’s
28:23 typically one used by new market
28:25 entrants and it’s used to accumulate
28:28 market share with low pricing basically
28:31 swoop in say hey we’re brand new to this
28:33 market look how attractive this pricing
28:36 is give us a shot okay and you know
28:40 hopefully that the pricing is good
28:46 enough that it will compel people to try
28:47 your product or service that day they’ll
28:49 be like you know might as well give
28:53 these people a shot you know this is a
28:55 this a hell of a bargain you know and
28:58 maybe maybe it stinks hopefully not but
29:01 in this what they’re thinking you know
29:03 maybe this product or service stinks but
29:06 you know at this price I gotta at least
29:08 try it okay so it’s short-term strategy
29:10 you don’t if you do it for long term
29:12 you’re gonna be doing economy pricing
29:14 and you know that’s tough for small
29:16 businesses to do economy pricing they
29:20 just don’t have the economies of scale
29:22 that a Walmart or whomever does so you
29:27 know again you want to keep this
29:28 strategy to the short-term and be ready
29:30 to transition to a new strategy you know
29:35 to raising prices to a more appropriate
29:39 level later and hopefully by getting
29:41 people to try your product or service by
29:44 luring them with the penetration pricing
29:46 your unique selling proposition you’re a
29:49 quality customer service whatever it may
29:52 be will compel them to remain customers
29:54 then you know you’ll probably have some
29:56 fall-off of demand of course but you
29:58 know hopefully then you’ve got gotten in
30:01 there and claimed a little bit of the
30:04 market for yourself so you know you can
30:07 then move on to a new strategy build
30:11 your business off of that initial grab
30:13 of market share and a couple examples
30:16 businesses that have done this is
30:17 Netflix and not the Netflix is expensive
30:21 now by any means and this potentially
30:25 better value now than it was but you
30:26 know I mean what was it
30:28 $5.99 799 or something when it first
30:31 started you know very very inexpensive
30:34 and it’s worked its way up there since
30:36 and you know that people at that price
30:40 said I even if you know I mean trillion
30:43 find something to watch them here will
30:45 try it for $7.99 a month whatever you
30:48 know so they they penetrated the market
30:50 stole market share away from the cable
30:52 companies or the movie theaters
30:55 potentially or you know the the whole
30:57 gamut of different sub interest
31:01 industries that they compete against
31:09 you know Google Fiber did this I don’t
31:14 know what that’s priced at now but you
31:17 know if this was back when it first came
31:19 out and they had gigabit an Internet and
31:21 you know it was absurdly inexpensive I
31:25 think they kicked it off here not far
31:27 from me and was it Topeka or Kansas City
31:30 Kansas or something like that and you
31:34 know yeah in order to get people to try
31:36 it they went with the low price and I
31:38 would imagine the price has gone up
31:40 since then so you know any any business
31:46 that uses a low introductory price is
31:51 using penetration pricing strategy
31:56 so a strategy that runs in contrast to
32:00 that is skimming pricing okay now when
32:04 you see this used as when research and
32:07 development or costs or just the cost in
32:12 general of bringing a product to market
32:14 are high okay so there was a lot a lot
32:18 of a lot a lot of capital expended
32:21 before this product was even able to be
32:26 offered for sale okay so so the
32:29 reasoning is we’ve got to charge a
32:32 pretty high price just you know we’re
32:35 not we’re not gonna make as many sales
32:37 as we potentially could but we you know
32:40 we need to make big sales to get big
32:42 money coming in to recoup those costs to
32:45 get closer to breaking even you know do
32:49 to make some big strides towards
32:52 breaking even and then as time goes on
32:55 and you know the early adopters buy it
32:57 okay then you’re able to lower the price
32:59 a little bit and you know then people
33:04 are maybe you’re like okay it was this
33:07 now it’s this so that’s a bargain and
33:09 you to you know a few more customers and
33:11 so you’re selling more and your
33:13 economies of scale are getting better
33:15 and the price can continue to be lowered
33:18 and you know and for this particular
33:22 strategy and the businesses that use it
33:24 it’s often necessary to start lowering
33:29 that price because if it’s a rapidly
33:32 moving industry you know electronics
33:35 computer equipment whatever it may be
33:39 um you know you better you damn well
33:43 better lower that price because
33:44 something new
33:46 better fancier you know faster smaller
33:51 whatever it may be is is on the horizon
33:54 if is if it isn’t already there so you
33:57 know that the lowering the price isn’t
33:59 just to make a higher volume of sales
34:02 it’s like I said out of necessity
34:05 because what it is that you initially
34:07 brought to market it ain’t so cutting at
34:09 cutting edge anymore
34:10 okay so again this is a short term
34:13 strategy and like I said you’re selling
34:16 to early adopters and
34:17 it’s kind of the opposite of the
34:19 penetration pricing and you know it’s
34:21 the cutting edge technology you know
34:25 game systems with the recent
34:27 announcement of the PS 5 even though I
34:29 don’t think they priced it yet
34:31 that I’ve seen you know those gaming
34:35 consoles are always priced in that
34:36 manner with the skimming you know the
34:39 price their highest when they’re first
34:41 introduced and as time goes by that
34:43 price goes down and by the time there’s
34:45 a next-generation console out well
34:46 forget it you can pick up the second
34:50 generation console for pennies on the
34:53 dollar
34:58 trucking along here we’ve got
35:01 pre-emptive pricing and this is another
35:03 short-term strategy now this is one that
35:06 would be used by somebody’s already in a
35:08 market and is responding to a new
35:12 entrant into the market and what they’re
35:15 doing is the lowering pricing so it’s
35:19 similar to penetration pricing but again
35:24 they’re already established in the
35:26 market they’ve already got their market
35:27 share and they want to keep it okay so
35:29 now look in the game market share and
35:31 they want to keep what they got and you
35:33 see this used by monopolies and big
35:36 businesses they’ll even have lost
35:39 leaders in some instances you know
35:41 grocery stores who sell bread or milk
35:44 for a slight loss because you know they
35:48 the prospect of spending so little on
35:52 bread or milk is so irresistible to so
35:54 many customers well they’re gonna come
35:56 in for the bread and milk and they’re
35:58 just gonna do the grocery shopping there
35:59 because grocery shopping is a pain in
36:01 the ass they’re not gonna go to the new
36:04 grocery store and hang about it are
36:07 already at a grocery store you know they
36:08 just said that you know then they make
36:10 up the the lost margin on you know the
36:16 lost leaders with other higher margin
36:20 products or with volume and so what what
36:23 does I do you know of course that
36:24 discourages competition that discourages
36:27 the new guy the little guy from getting
36:31 into the market so this is a defensive
36:34 tactic basically and like I said not one
36:37 typically used by startups and some
36:39 examples you know it had it happens and
36:44 I mean I think Walmart you know their
36:45 grocery stores and it was Walmart of
36:47 course which is a little infamous for
36:49 this
36:49 I imagine Walmart still does it in some
36:52 respects but you know I they the example
36:59 I I found was a prescription prices
37:01 where they would sell some prescription
37:03 drugs you know sell them either at a
37:06 very low margin or as lost leaders and
37:08 you know prescriptions are can be a big
37:12 chunk of people’s budget and you know
37:15 the prospect of saving money on them is
37:17 like I said it’s irresistible well okay
37:20 so we’re gonna get our prescriptions
37:21 filled at Walmart and we gonna get back
37:23 in our car and drive a mile down the
37:26 road to go to the groats other grocery
37:28 store we just gonna do our grocery
37:29 shopping at Walmart you know well a lot
37:32 a lot of people you know and on my
37:35 mother she would she’d drive all around
37:37 town buying each individual item it’s on
37:40 sale from each individual grocery store
37:42 I think if if there were more than 24
37:45 hours in a day but most people are just
37:48 going to you know do the grocery
37:51 shopping there so you know I thought it
37:54 seems like such a kind of
38:00 I don’t know if sort of thing you feel
38:03 like is done all the time but I really
38:05 had our time find an example so I’m sure
38:07 there are more out there I’m sure it is
38:09 done and maybe it’s just not as
38:11 documented as easy as you might know as
38:14 you might think it is rather but anyhow
38:18 that it is pre-emptive pricing probably
38:20 not not something you’ll have to worry
38:23 about but something should be aware of
38:29 okay so cartel pricing we’re all
38:32 familiar with the word cartel and
38:36 you know the reason is you know because
38:41 this is sometimes how pricing is done
38:46 you know when they sell drug cartels
38:48 sell commodities of course you know
38:51 heroin you know heroin users not real
38:55 particular about their supplier as long
38:58 as the quality’s the same I’m
39:00 speculating here and not speaking from
39:02 experience and but you know drugs are a
39:05 commodity so it’s a it’s in essence a
39:09 gentleman’s agreement to keep prices
39:10 high so if you got two competitors it’s
39:12 like why sit here and fight on price you
39:17 know that just digs in to our margins if
39:21 there’s you know a few just a few of us
39:23 let’s just say you know nope this is
39:26 what we’re pricing it at okay and we’ll
39:29 compete through other channels you know
39:30 and drug cartels probably you know don’t
39:34 compete terribly fairly but in principle
39:39 you know like I said you would agree to
39:41 compete there other chance whether it’s
39:42 marketing or trying to lower your own
39:44 cost things like that you know to to get
39:49 an edge so it’s not a strategy that will
39:55 work with too many businesses in the
39:57 marketplace because you know between two
40:01 people two businesses okay three maybe
40:05 four
40:05 good luck five forget it you know I mean
40:09 I’m I’m you know speaking hypothetically
40:14 they’re you know the number it just
40:17 depends on them the business I guess but
40:19 the point being eventually if you have
40:22 too many competitors somebody’s gonna
40:24 take the easy road somebody’s gonna say
40:27 now I’m just gonna I’m gonna lower my
40:29 prices and try to steal market share you
40:31 know somebody will give in somebody will
40:33 cave and then that in turn forces all
40:37 the other market participants to do the
40:39 same thing so he got examples are OPEC
40:45 you know
40:48 drug cartels of course in the federal
40:51 reserve is in essence a cartel of banks
40:55 and Siemens in Europe and again I found
41:00 a link or references that example okay
41:06 so cost plus pricing this is a pricing
41:11 strategy that focuses purely on the cost
41:13 and it just adds a fixed percentage to
41:16 the cost of products or services so the
41:20 old legend was that Nebraska Furniture
41:24 Mart before Berkshire Hathaway bought it
41:28 sold it costs plus 10% and did a high
41:34 volume of business but this is still not
41:36 a pricing strategy I would recommend
41:38 recommend and you know Makana Cost
41:42 Accountant and
41:43 so I you know recognize the importance
41:47 of understanding your cost that this is
41:49 a kind of a lazy lazy pricing strategy
41:52 and cost by no means should be the only
41:55 factor to consider and when it comes to
41:57 pricing
42:01 examples that I found were cutting-edge
42:06 technology smart phones other
42:08 electronics
42:12 and that they were is a little hard to
42:14 find some more specific examples but
42:17 like I said there was a Nebraska
42:19 Furniture Mart I do remember that from
42:21 back when I read a lot of books on
42:23 Warren Buffett
42:27 okay so dynamic pricing this is a
42:34 flexible pricing strategy that changes
42:37 with demand so it basically prices go up
42:42 as demand goes down I’m sorry prices go
42:48 up as demand goes up excuse me
42:50 prices go down as demand goes down to
42:52 lure customers in and we’re talking that
42:56 these prices can change inside of a day
42:59 you know and so very quickly very very
43:03 dynamic it’s the name and you know a lot
43:07 of times you’re gonna need software with
43:10 a quality algorithm to keep up with
43:13 those changes in demand and to make sure
43:16 that you don’t get hosed and examples
43:18 are hotels and airlines
43:24 freemium pricing this is a combination
43:28 of the words free and premium premium
43:32 course and basically where you offer for
43:36 free a bare-bones version of your
43:39 product really just to kind of whet
43:41 people’s appetite give them a chance to
43:44 interact with it and see field like a
43:48 like a sample at a grocery store at
43:50 Costco or Sam’s or whatever and the goal
43:54 is of course to get customers to like it
43:57 your little free taste test and then
43:59 upgrade to a paid version and it’s in
44:04 some essence more of a marketing
44:08 strategy than a pricing one but you know
44:11 I did include it in here because it’s
44:13 worth we’re thinking about and you see
44:15 this a lot with the software and
44:17 software is a service in particular
44:23 okay so we’re getting getting down in
44:26 nitty-gritty here to more hourly pricing
44:31 this is a pricing strategy that’s
44:34 exclusively for services you know it’s
44:39 where you trade time for money and it’s
44:41 not advised I wrote a post on my other
44:44 side invest some money calm about
44:46 business models and kind of the
44:49 hierarchy and which are the most
44:51 attractive and trading time for money is
44:53 at the bottom it is the least attractive
44:56 and it’s not advised because you can’t
44:59 scale you can’t make more time in the
45:02 day no matter how hard you try no matter
45:05 what you do and you know it’s some
45:11 people when they first get into owning
45:14 their own business is bookkeeping or
45:15 freelancers or that do that and it’s
45:19 it’s simple in some respects certainly
45:22 but you know it’s a it just puts a cap
45:25 on your success so it’s not recommended
45:27 and but examples and there are examples
45:31 that put employees because that’s
45:33 exactly what most employees do you know
45:35 those that aren’t on some sort of
45:37 commission or large bonus program trade
45:42 time for money you know it’s what I do
45:45 and it’s ill-advised it’s not why you
45:49 got into business for yourself I mean it
45:52 you know aside from the freedom and the
45:55 control of course but you know
45:59 focuses on input you know your time and
46:02 labor or someone or another employees
46:04 time and labor it’s the same you can’t
46:06 create any more hours in the day for
46:08 other employees either but it focuses on
46:11 that input rather than the output that’s
46:13 the value received by your customer so
46:15 again not an advised strategy typically
46:19 but you know you have to be we’re aware
46:23 of its existence
46:29 project pricing is kind of the opposite
46:32 of hourly pricing and it’s also
46:34 exclusively for services because it’s a
46:37 flat fee charge for a deliverable it
46:41 might include you know products in there
46:47 too in terms of the pricing so a may be
46:51 exclusively for services but it’s
46:54 typically a services pricing strategy
46:57 for services and similar the value
47:00 pricing you know the fee you charge is
47:03 for deliverable and it’s hopefully based
47:06 on the value received by the customer
47:08 for that deliverable and it focuses on
47:11 the output you know the customers value
47:12 received rather than the input time and
47:14 labor some examples that do this it can
47:18 be done with some of the other examples
47:19 bookkeeping freelancing and that but you
47:23 know other examples are consulting
47:25 contractors and freelancers like I said
47:30 they can do it too so alright those are
47:33 the pricing strategies and I’ve been
47:36 going on for a while here but keep
47:41 pushing along and
47:45 talk about a little bit now about some
47:46 factors to consider when you’re talking
47:50 about pricing and some of those main
47:54 factors to consider are costs your
47:56 customers competitors new products and
47:59 market segmentation segmentation rather
48:02 get into that here so costs and pricing
48:07 I said cost plus is not typically a
48:13 recommended strategy but it is critical
48:16 that you understand your cost okay so
48:19 again just because I say cost less is
48:21 and how you want to pry something
48:22 doesn’t mean you can just be willy-nilly
48:24 with understanding your costs critical
48:26 that you understand your cost you want
48:28 to get as accurate as possible knowledge
48:32 of what each product and service cost
48:34 you deliver to customers okay so you
48:36 know your true margins and keep in mind
48:38 cost is more than labor and materials
48:40 there’s overhead there’s sgna expenses
48:44 and there’s just the manner in which you
48:46 allocate costs okay there’s a lot it’s
48:48 there’s no cut and drying method for
48:50 doing that some are going to be better
48:52 than others
48:53 some are gonna be more accurate than
48:55 others is what I mean an activity-based
48:58 costing I’ve got a page on that on the
49:02 website and you know that’s a generally
49:07 regarded as a well it’s certainly more
49:10 accurate than just generic costing but
49:15 excuse me it’s also a very heavily
49:18 involved process so not to be taken
49:23 lightly but if it’s done and with some
49:26 with some sense and taking seriously and
49:29 seeing through can provide some good
49:31 insights okay so you know the other
49:34 thing about constitu is categorization
49:36 ok that’s important with whether you you
49:40 understanding what of your costs are
49:43 fixed and what are variable because this
49:44 is gonna impact your operating leverage
49:46 you guessed it another subject I have a
49:50 post on on the website and you know
49:53 operating leverage to use the hi fix use
49:56 of five high fixed costs is
49:58 it gives you the ability to learn
50:02 extraordinary returns if you can sell
50:04 enough
50:05 okay so customers ultimately when it
50:09 comes to pricing your customers have to
50:10 buy in okay you have to understand what
50:15 they expect in terms of customer
50:17 services quality and of course pricing
50:20 and you know customer service and
50:25 quality aren’t gonna affect your cost so
50:27 it’s kind of a circular circular sort of
50:30 thing a feedback loop and you want to
50:32 know your customer avatars I talked
50:34 about that on some of my business plan
50:37 posts particularly and get down here
50:41 some of the earlier ones what is it yeah
50:47 business plan demand talks about
50:49 customer avatars and that’s basically
50:51 the demographic makeup of your customers
50:54 you know that you’re kind of in terms of
51:00 gender age income all those demographic
51:05 factors what you’re you know who your
51:10 customers are so you want to know them
51:12 okay you wanna know what compels them to
51:14 make purchasing decisions and beyond
51:16 that you want to have a firm grasp on
51:19 your unique selling proposition
51:20 something I’ve written about on invests
51:23 the money website and you know this is
51:27 basically what makes you your business
51:29 unique okay and this is how you separate
51:33 yourself from your competitors and you
51:35 know can can then charge what charge
51:39 your best price
51:42 competitors you’re gonna want to do
51:44 little detective work on on them and
51:48 understand you know how they position
51:50 themselves with strategies they use how
51:53 much do they offer in terms of customer
51:55 service and quality and what is their
51:57 unique selling proposition okay because
52:00 you know your customers are making
52:02 choices between you and competitors you
52:05 want to understand who you’re up against
52:07 okay you want to you want to do your
52:09 scouting report
52:12 so new when it comes to new products and
52:14 pricing and in this case we might be
52:16 talking new to you not the market and
52:20 you know a lot of times you do want to
52:23 come out of the gates and try to capture
52:25 market share quickly and have a high B
52:27 through penetration pricing strategy but
52:30 it depends on the market saturation
52:32 depends on the sophistication the
52:34 competitors whether that’s the strategy
52:36 you have to adopt but again I want to
52:40 remind you that is a short-term strategy
52:43 it needs to be part of a larger plan and
52:45 larger plan you know when it comes to
52:48 new products to don’t discount the value
52:50 of transparency and authenticity with
52:52 your customers you know when especially
52:56 if you’re making direct sales you know
52:59 why are you charging what you charge
53:01 okay a customer like might like that you
53:05 know they understand you’ve got to make
53:06 a profit and you know if they get taken
53:10 care of and feel like they’re in good
53:12 hands they’re a lot of times might be
53:15 willing to pay a little higher price and
53:18 you know they they appreciate you being
53:20 upfront and really given them the
53:24 information they need to compare the
53:27 value proposition between you and the
53:29 competitors so you know don’t as a rule
53:34 of thumb
53:34 yeah B be transparent in that respect I
53:37 think your customers will probably
53:39 appreciate it and then market
53:43 segmentation pricing I touched on this
53:46 earlier you know not all your customers
53:50 are the same different avatars other
53:52 differences that could really affect the
53:54 cost that’s needed to serve those
53:56 customers geography the amount they buy
54:00 and the timing of the sales you know did
54:04 they buy off and do they buy in peak
54:07 season not peak season things like that
54:09 okay so we’re not talking about price
54:11 discrimination here charging essentially
54:15 the same customer customers to different
54:19 customers to different prices no I mean
54:21 we’re talking about real things that
54:23 effect you know that you can justifiably
54:26 charge different prices for so don’t you
54:30 know depending on your business don’t
54:32 just make a blanket
54:35 prices pricing strategy you know think
54:37 about is it are there certain customers
54:40 that you could and should charge more
54:42 because they cost more to serve because
54:44 you know they’re getting a higher value
54:46 whatever it may be last thing we’ll
54:51 touch on here before the pricing tool is
54:57 the business plan and pricing okay so
54:59 like I said this is part of a bigger
55:02 series on business plan in particular
55:07 you know market research for a business
55:09 plan and you know pricing effects market
55:14 research of course who your competitors
55:16 are gonna be and it’ll affect the demand
55:20 you know demand and pricing are more you
55:25 know generally speaking inversely
55:28 related though you know that can be
55:30 worked around pricing will affect your
55:33 market size your serviceable available
55:35 market and the serviceable obtainable
55:37 market what you charge in price might
55:41 affect the location of your business
55:42 okay some locations are going to be more
55:44 conducive to higher prices and/or lower
55:47 prices the demographics where you are
55:49 you know he you got to think about that
55:52 again depends on your type of business
55:56 it might affect how you calculate market
56:00 saturation and I think that was my last
56:03 post on
56:05 market research yep market saturation
56:07 okay
56:09 and not post talk about finding and
56:12 setting a benchmark okay as you’re
56:14 researching for your business plan or
56:17 just for your annual planning you know
56:23 your pricing will affect what you choose
56:26 your benchmark and number four will
56:28 determine you know how Sacchi
56:32 saturated the market might be it’ll
56:35 affect your marketing of course and
56:37 it’ll affect your financial projections
56:39 of course you know your budgeting
56:42 capital budgeting operating budgeting
56:45 and financial budgeting and all of your
56:49 income state or all of your financial
56:50 statements income balance sheet and cash
56:52 flow okay
56:57 let’s talk a little bit about tool for
56:59 pricing I will put a link in the
57:01 description and this tool and there’s a
57:05 little snapshot of it
57:06 now I’ve got it up here so I can
57:09 directly reference it too but it’s in
57:12 the slides there and it’s inspired by
57:15 something called a Van Weston dorp as a
57:18 price sensitivity meter or just price
57:21 sensitivity meter for short
57:24 Dutch fellow I think came up with it and
57:28 what you’re doing in essence when you
57:31 use this tool you’re answering four
57:33 questions for a range of prices so for
57:37 for every price
57:40 in this range or not you know not every
57:43 price to the penny but you know for a
57:46 bunch of different prices you’re
57:47 answering four questions okay
57:49 these questions are what percentage of
57:51 people would question the quality of
57:53 this product or service at these prices
57:56 okay
57:57 ie they would think it’s too cheap
57:59 something’s wrong with it
58:00 it’s none nothing worth a damn is going
58:04 to be this inexpensive okay what
58:07 percentage of people would think that
58:08 the product or service is a bargain at
58:10 these prices okay so another way of
58:14 thinking that is it’s not expensive it’s
58:16 a bargain alright for each of those
58:20 prices what percentage of people would
58:22 think this product or service is getting
58:24 expensive so it’s no longer a bargain
58:26 it’s just it’s starting to get any
58:29 expensive range okay and what percentage
58:33 of people would think this product or
58:35 service is too expensive to these prices
58:38 ie that one doesn’t need an ie too
58:42 expensive too expensive you know what
58:44 that means I know what that means
58:48 okay so those are your four questions
58:50 and so when you answer these four
58:52 questions over a range of prices okay so
58:56 right here see here we got our range of
58:59 prices and we’re answering this question
59:01 the percentage of people that would
59:04 think
59:07 you know that would answer these
59:09 questions as follows
59:11 or is it shown over here at these prices
59:13 and shown here and what that does is
59:16 graph it out for you and then this well
59:19 I put in the table here to give you the
59:21 exact number but then you can see it on
59:22 the graph too and each of these points
59:24 where they cross provide you with the
59:27 information okay a couple of links real
59:33 good links at the bottom there on this
59:37 subject so like I said provides pride
59:44 the graph and the table provides pricing
59:47 insights and ideas and a what’s known as
59:50 a range of acceptable pricing okay so
59:53 the intersection of lines what do they
59:55 tell you all right
60:07 and I didn’t do this right well I’ll
60:09 tweak this table okay so we’ve got
60:17 marginal cheapness okay and if you’ve
60:22 ever watched my videos before which you
60:24 probably haven’t because not many people
60:25 have but you know I’m not above tweaking
60:29 a table on the fly here
60:43 okay
60:51 okay so the first one here we’re
60:53 questioning quality and getting
60:55 expensive intersect this is known as the
60:57 point of marginal cheapness okay or PMC
61:00 it means that any lower of a price could
61:06 mean that you’ll lose too many sales to
61:07 a perceived lack of quality okay so you
61:14 know there are there are basically
61:17 already quite a few people who think
61:19 that the product is cheap bordering on
61:22 too cheap so lowering it anymore
61:24 in theory isn’t gonna give you a bigger
61:28 volume of sales to offset the people
61:32 that just won’t buy it because they
61:33 think it’s not worth a damn okay so the
61:37 next point the optimum price point is
61:39 they call it and doesn’t mean you have
61:40 to choose this price point it’s just
61:43 this name is where the same percentage
61:48 of people and this is hopefully a low
61:50 percentage of people
61:52 feel the the product or service is too
61:55 expensive and they think the quality is
61:58 questionable okay so you’ve got both it
62:00 this is where both extremes intersect
62:02 okay but where they intersect this hope
62:06 again hopefully a low percentage because
62:08 these people aren’t going to buy in
62:11 either instance because they’re gonna
62:13 either question the quality or they’re
62:15 gonna think it’s too expensive its
62:18 overpriced so it’s the point you’re
62:20 minimizing those extremes okay the next
62:29 one is indifference price point where
62:32 bargain and getting expensive
62:44 intersect
62:50 so here this is the same hopefully high
62:53 percentage of people are in that middle
62:57 ground okay where a lot of them and and
63:01 this is the one where I see the most
63:03 kind of people who’ve written on it
63:05 recommended that you get your price if
63:07 you’re you know again I’d take
63:10 everything into consideration but this
63:12 is a good starting a point okay
63:14 ironically not the quote unquote optimum
63:16 price point just what they were named
63:18 and you know and I guess the name stuck
63:21 but the rationale changed over the years
63:23 it’s kind of an old model but so it’s
63:28 the same again hopefully high percentage
63:30 of customers feel the product is it’s
63:31 just starting to get expensive and same
63:35 percentage of people think it’s a
63:36 bargain okay so these are the people
63:39 they’re gonna make purchases all right
63:42 so that you know again this is where
63:48 potentially you would have the highest
63:50 volume depending on the quality of your
63:51 information and if finally the last one
63:54 is the point of marginal expensiveness
63:57 okay so bargain and too expensive where
64:00 those lines intersect
64:07 so it’s basically the same as the point
64:13 of marginal cheapness just flipped on
64:16 its head you know it means any higher of
64:18 a price you
64:21 you know you just gonna see too big of a
64:24 drop-off in in demand to to really help
64:32 your sales okay if it gets any more
64:35 expensive demands probably gonna fall
64:37 off and there just aren’t enough people
64:39 that feel that this is you know beyond
64:45 this point and there aren’t a big
64:48 percentage of people they’re gonna feel
64:49 that you know that either this is
64:56 a bargain or even getting expensive you
65:00 know beyond this point a lot of people
65:02 are gonna start to think it’s too
65:03 expensive too many people okay so you
65:08 know you you do that you fill this
65:11 information out you know the
65:13 intersections are over here on the table
65:15 you can see the prices but for
65:17 everything I entered up here here’s our
65:19 point of marginal cheapness eighty four
65:22 ninety nine any less than that so many
65:24 people are gonna think that it’s junk
65:26 and it won’t buy it the demand will be
65:29 there you know we got our optimum price
65:31 point ninety three thirty two and down
65:36 here we’re same percentage of people or
65:39 if the question quality and think it’s
65:41 too expensive that’s where the extremes
65:43 are minimized okay we got our
65:45 indifference price point here where our
65:48 moderate our purchasers are maximized
65:50 percentage-wise
65:51 that’s a $115 and then we got our point
65:56 of marginal expensiveness beyond this
65:57 too many people are going to think it’s
65:59 too expensive the demand won’t be there
66:03 so yeah like I said they and their
66:08 sections are over here and we’ll go over
66:10 how to use the table here next
66:14 almost done two more slides hang in
66:17 there I’m trying to hang in there myself
66:19 been going on an hour in six minutes
66:21 ended up my videos always go longer than
66:26 I anticipated but you know it’s a labor
66:29 of love
66:30 sure selling a labor of monetary reward
66:34 but nem okay how do you use the price
66:38 sensitivity meter well if you can
66:41 conduct an actual survey of customers or
66:43 get your hands on that information
66:44 otherwise and great use it okay
66:49 if you can’t do that
66:53 indefinitely research it further if
66:55 that’s the path you’re gonna take cuz
66:57 you want to understand the wording of
66:58 the questions there’s ill you know it’s
67:00 kind of an art unto itself okay
67:03 obviously I’m using a hypothetical
67:05 example here and just speculated but um
67:10 you know if you don’t if you don’t think
67:12 you can practically conduct the survey
67:14 or get this information from potential
67:15 customers then you have to speculate so
67:19 first thing you do is enter the average
67:21 or medium price you know take them
67:24 whatever the first price that comes to
67:26 mind
67:27 okay this doesn’t have to be exact and
67:29 enter it right here in h2 okay so from
67:31 there it’s going to calculate down to
67:34 zero and it’s gonna calculate up give
67:37 you a range of prices up to double the
67:39 price okay that’ll happen automatically
67:45 again I’ll make the point if you’ve ever
67:48 used any of my other tools you know the
67:50 white cells okay that’s where you put
67:53 information in shaded cells have
67:55 formulas okay so don’t type over them
67:57 type in the white cells and excuse me
68:01 you’ll be good to go
68:05 okay so for each question and are the
68:07 percentage of customers who would or you
68:09 think would agree so at zero well it’s a
68:16 hundred and a hundred okay so we’re
68:18 going to say
68:21 everybody would question the quality at
68:24 zero and by default everybody would
68:28 think it’s a quote unquote bargain there
68:31 and you know this just has to do with
68:34 if you enter zero here well first of all
68:38 it’ll give you an error okay because it
68:40 kind of violates the rules it’s
68:44 less people are always gonna question
68:46 the quality then think it’s a bargain
68:47 okay less people are always gonna think
68:51 it’s too expensive and think it’s
68:53 getting expensive okay so me describing
68:57 it I might not do it justice
69:01 if you tinker around with this a little
69:02 bit I think it’ll it’ll become intuitive
69:05 you know it just takes a little getting
69:06 used to and it’s you know in essence you
69:09 want your lines like this so like I said
69:11 this question quality is the blue line
69:13 here is always less than the red line
69:16 alright because you know this is worse
69:22 than bargain
69:24 okay so fewer people are gonna think
69:26 that conversely too expensive it’s
69:30 always gonna be fewer people and think
69:32 it’s getting expensive okay and you see
69:35 the lines sloped down this way for the
69:37 bottom to slope down this way for the
69:39 top so again there’s logic worked into
69:42 the table here where you can’t go from
69:44 oh well ninety percent people question
69:47 quality at twenty but ninety five are
69:49 gonna question it at forty well that
69:51 wouldn’t make sense okay why would more
69:53 people question the quality of forty
69:55 dollars than would at twenty twenty is
69:57 less than forty so if you try to do that
70:01 that it’ll say no no violates the rules
70:06 try again and that’s just to keep you
70:08 from entering information that you know
70:14 would basically render the tool useless
70:16 so I put that in there for your own good
70:18 you know and particularly as you’re kind
70:20 of like getting used to it tinkering
70:22 with it
70:25 you know it it just helps got as kind of
70:29 a check they’re just like hey you know
70:31 that’s not what you want to do and like
70:32 I said you’ll get used to it and you’ll
70:33 you’ll understand become a little more
70:35 intuitive to you that at first glance it
70:38 if you’re just watching this video it
70:39 might not be but again I would encourage
70:40 you to download it try it a little bit
70:43 and read up on it some more you know
70:45 they there might be a damn good
70:49 possibility someone else explains it
70:50 better than I do okay so talk a little
70:54 bit about the the logic here question
70:57 quality and bargain must be equal or
71:01 decrease as the price increases okay
71:04 price goes up fewer people are gonna
71:07 think it’s a bargain fewer people are
71:08 gonna question the quality you know
71:11 question quality it means that it’s so
71:14 low something must be wrong with it
71:16 why are they trying to give this away
71:20 okay conversely getting expensive and
71:24 too expensive must be equal as the price
71:27 increases or increase okay as the price
71:32 increases more people are gonna think
71:33 it’s too expensive more people are gonna
71:35 think it’s getting expensive all right
71:37 it’s pretty straightforward okay so the
71:40 percentage that question quality must be
71:42 equal to or lower like I said earlier
71:44 than think it’s a bargain
71:45 if you were you know this is a worse
71:52 description okay you know so there’s
71:57 always gonna be fewer people that think
72:00 that or there has to be in terms of this
72:04 within the context of this tool you know
72:08 anything’s possible but you know like I
72:11 said this is just kind of the logic that
72:12 you have to use to be able to get get
72:14 anything from this tool because if you
72:15 throw this logic out the window then the
72:17 tool is useless and you know so
72:23 and I touched on earlier so the
72:24 percentage that feel it’s too expensive
72:25 must also be equal to or lower than the
72:27 percentage to feel it’s getting
72:28 expensive fewer people are going to
72:30 think it’s too expensive I think it’s
72:32 just starting to get expensive game
72:35 trechie present prevents this logic can
72:38 be violated your
72:44 losing point of marginal cheapness
72:45 optimum price point indifference price
72:47 point and point of marginal
72:48 expensiveness are automatically
72:50 calculated and the graph is
72:51 automatically updated so for example
72:56 like if we take this and say this the
73:01 question quality it was 15 10 5
73:08 you see a little bit see the graph
73:11 change down here and then with some of
73:14 those first edits he saw the price the
73:18 point of marginal cheap cheapness change
73:20 see it jumps okay because it changes all
73:26 right so it’s the same as you you know
73:28 particularly as you get to update and
73:29 these values in the middle that’s where
73:30 you gonna see these changes in the
73:32 prices but you’ll see the graph a bit II
73:36 no matter where what changes you make
73:39 some ok and went on our fifteen seventy
73:45 five minutes yeah
73:46 it’s a long one I’m done you know I did
73:51 included this slide in with mostly with
73:54 my quickbooks online videos and it
73:59 doesn’t directly apply here but i
74:00 slipped it in anyways and you know
74:02 depending on where you’re at with your
74:03 bookkeeping if you DIY in it and you
74:08 hate it and you know you want to work
74:13 more on your business than work in your
74:14 business and do less data entry because
74:17 you think that’s boring and you’re right
74:19 then check out bot keeper you know they
74:23 use AI to automate your bookkeeping
74:25 tasks they can do it in quickbooks
74:27 online and like i say gives you the
74:29 opportunity help your business grow it
74:32 spend less time on menial tasks and
74:35 there will be a link down in the
74:37 description for that
74:41 okay that’s all I got man if you stuck
74:45 with me thank you hope you found some
74:48 value there some things to think about
74:50 and like I said pricing is a complicated
74:53 manner but when we’re spending time on
74:57 check out the tool try it again I you
75:00 know don’t let spreadsheets scare you I
75:02 try to make my spreadsheets as
75:04 simplistic as possible and give you the
75:07 documentation you need to use them and
75:10 get value from them because that’s what
75:11 they’re there for
75:12 you know so any you know the old and
75:17 it’s an old saying I’ve only seen it
75:19 said once and I thought it was great
75:20 though they said you know better to make
75:23 mistakes in a spreadsheet then in real
75:26 life you know when I’m not doing the
75:28 quote justice but something like that
75:30 but I am I’ll leave you all with that
75:33 thanks for watching
75:35 take care

Pricing strategy example

As has been customary for my business plan posts, I’ll be trying to apply what write about (or record, in this case).

I’ve been using a startup that seeks to manufacture an all-natural topical hair regrowth treatment for my examples thus far. Though the previous post on market saturation called the viability of that idea into question – I’ll continue to use it for consistency’s sake.

As far as pricing strategies go, I knew I wanted to use psychological pricing – because why not? If it convinces a few more people to buy than would have otherwise, it’s worth it.

Also, due to the nature of the product (vanity) I always figured that premium pricing would be appropriate. Not excessive, but I knew I wanted to price on the high end. Again, I can always run promotions.

I also wanted to be mindful of value. This is, admittedly, not a miracle product. It’s just a supplement. If it cured all hair loss, I could charge just about any price for it. But, it doesn’t. So, I need to be mindful of just how much value I’m providing.

With those strategies in mind, I went to Amazon and searched for competing products. I did this for both men and women because I thought it would be smart to price those customer segments differently. I could make slight tweaks to the formula to justify the difference in pricing.

I thought that a women’s hair regrowth product would be priced higher. The reason I thought this was because of the (surprising) preponderance of women concerned about hair loss. I was wrong, however. Women’s hair regrowth products tended to be priced lower than men’s.

After getting a feel for the pricing for each segment, I plugged my assumptions into the Price Sensitivity Meter.

Here’s what I came up with:

Men’s pricing: $35.49 for a one-month supply.

mens product price sensitivity meter
Click to enlarge

Women’s pricing: $29.49 for a one-month supply.

womens product price sensitivity meter
Click to enlarge

5 Pricing Strategies | Gain Market Share for Your Small Biz

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5 pricing strategies featured

Competitive, premium, value-based, skimming, and penetration are five of the most used strategies in pricing goods and services.

Price is an extremely important factor for consumers. In fact, it is the number one factor in deciding where to buy. Pricing products properly is essential to obtain good financial results and still guarantee profit for your business. Today, consumers can buy from wherever they want, whether through online stores, apps, social media, etc. In addition, they can also compare prices using Google Shopping or specialized price comparison sites. The point is, buyers are smarter, so you also need to be. For this reason, consider the following strategies for attracting customers and increasing sales.

How does the customer evaluate the price?

Before we talk about pricing strategies, you need to understand how the consumer evaluates this variable. It’s not just the numbers on the label. There is a subtle difference between the price of your product and the value it has. It is the comparison between these two factors that will make your customer assess whether the merchandise is priced low, high, or fair.

The price is the investment made by the consumer in the purchase of this merchandise and involves the cost of production, taxation, profit margin, and operating costs.

Unlike price, value is not based on numerical data, but on subjective aspects of the consumer. The value refers to the extent to which a product meets the customer’s needs and the benefits that the customer perceives in the merchandise compared to the investment he will make at the time of purchase. Value is what makes customers willing to pay twice as much for a certain brand in relation to another with the same specifications.

Therefore, it is important to ask yourself what is the benefit that a customer sees in your products and how much they are willing to pay. With that in mind, consider the following pricing strategies.

1) Competitive pricing

This strategy relies on competition to define the final price of the product. This is common when your product or service differs very little from that of your competitors. Therefore, you adapt their price. Companies competing in a highly saturated space prefer this strategy, as the slight price difference may be a factor influencing the decision for buyers.

With this strategy, you can price your product slightly cheaper than your competitor’s, use the same price as your competitor’s, or set the price slightly more expensive than your competitor’s. Note that there is always a market leader that sets the standard, and competitors follow it.

The objective of the competitive pricing strategy is to increase the number of customers or increase market share by attracting customers from competitors. However, keep in mind that no matter what price you have chosen, competitive pricing is a path that will help you stay ahead of your competitors and dynamically maintain your pricing.

2) Premium pricing

This is a pricing strategy where you set the price of your product or service above the normal market price. This can make consumers think that your product has something special and of greater value than those offered by your competitors. Although this pricing strategy may make other consumers not buy from you, that’s okay. Because one of the premises of this strategy is that higher-priced products create a different perception of the market.

However, you should study your product and think about why it should be more expensive than others in the same category. It does not make sense that you raise the price of a product that does not really meet consumer expectations, or that the competition offers one that surpasses yours at a lower price.

3) Value-based pricing

A value-based pricing strategy is when companies price their products or services based on the consumers’ willingness to pay. In short, the price is set according to the perception of the buyer’s value on the product. Here, even if a product is assigned a higher price, consumers will still be willing to buy the product. However, it is difficult to measure the value that customers attach to a product. Therefore, you must work to establish the correct estimates.

If used correctly, this strategy can boost customer trust and loyalty. Likewise, it can help you prioritize your clients in other facets of your company, as well as marketing. On the other hand, the value-based strategy requires that you know your customer avatar well.

4) Price skimming strategy

Skimming pricing is the setting of a high price for a product or service in the initial period of sale and gradually reducing the price of that product or service later. This is done to reach more general consumers.

One of the biggest benefits of using this pricing strategy is that it allows businesses to maximize profits thanks to so-called early adopters. Lowering the price end up attracting those consumers who are much more sensitive to the price of a product or service. This strategy is suitable for products that have a short life cycle, such as those that are really trendy.

Before implementing this strategy, you should first understand the following:

  • The strategy will be more effective when there is little competition (when you enter, you lower the price gradually)
  • You can implement this strategy as long as your product or service has the necessary quality to be able to be purchased at a high price in its introduction phase
  • Being a more expensive product, in the beginning, you need to target a segment of the population that has a higher economic profile

5) Penetration pricing

Penetration pricing is the initial low price setting for a product. The goal is to set a price to get a large group of customers interested in buying. When the products’ sales increase, the price is returned to the same level as the competitors.

Penetration pricing is suitable for products that can replace other products. For instance fast-moving consumer goods such as vegetable oil, detergents, soaps, toothpaste, instant noodles, and so on.

As for the progressive rise in prices, be very careful. You will have to take great care of the volume of these increases. If they are drastic, you will lose many customers as fast as you have gained them.

Clear examples of this pricing strategy were used by Netflix and Amazon.

Both offered quite affordable prices for great service, and have recently raised their rates. However, they have become necessary in our lives, and we consider that even with the rise, the price is still affordable for what they give us in return.

In principle, this strategy can make you known in the market and attract buyers, but it can also hurt your bottom line. Therefore, you must know your costs (and margins) so as not to incur losses.

StrategyProsCons
CompetitiveGain market shareLower margins
PremiumHigher marginsHigher cost + quality
Value-basedCustomer satisfactionDifficult to measure
SkimmingHigher (initial) marginsOnly for certain products
PenetrationGain market shareLower (initial) margins

Important tips for defining pricing strategies

These pricing strategies, when thoughtfully applied, have the power to attract customers to your business. However, it is important to evaluate other aspects before changing the prices of your products or services. So here are some tips to help you at this point:

Pay attention to your costs

Even with the increase in demand, reducing the prices of your products without observing the costs of production and acquisition of your merchandise can cause serious losses to the business. So, evaluate this information well when setting pricing.

Define your strategy in relation to the competition

Before setting a price, it is important to check how your company wants to position itself in front of competitors. Does your company want to offer more for the same? More for less? Or more for more?

Try not to set high prices for products of lower quality than those offered by competitors. This is the worst pricing strategy that your company can adopt.

The low price does not retain customer loyalty

A low price may attract more consumers, but that is not what will turn them into loyal customers. It is necessary for your small business to set itself apart and make consumers return. To distinguish itself through the agility of employees, the quality of service, or the environment of the establishment.

Count on the right tools

Price is an extremely dynamic variable. Controlling and managing all this through spreadsheets can be cumbersome and is prone to human error.

Software exists that can optimize your price management process. Find the tool that best suits your needs and makes your routine easier.

A guide to the five main pricing strategies

These are pricing strategies that can be applied in every business. Each strategy has its advantages and disadvantages. So, you must weigh those pros and cons.

Don’t limit yourself to using only one of these strategies. Combine them, and mix as many strategies as you require. This will help you find the one that guarantees sales, the flow of consumers, and positive results.

https://youtu.be/1MuvyoU2ueY

Periodic Sales Promotions in QuickBooks Online

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weekly-monthly-holiday-sales-promotions-featured
  • Periodic sales promotions give small businesses the best chance of boosting sales and profitability when they are carefully planned.
  • Care must be taken to not use periodic sales promotions as a crutch when sales fall short of expectations.
  • QuickBooks Online price rules give small businesses the opportunity to efficiently apply promotional pricing to products and services.
  • Small business owners, who are concerned about what effects sale promotions might have on revenue, can use this information to lower uncertainty

Periodic sales promotions

Weekly/monthly/holiday sales, aka periodic sales promotions, are something we’re all familiar with. The “one day only sale!” The “Memorial Day sale!” The “semi-annual sale!” Or, the most famous, the “Black Friday sale!” are all examples.

Before we get too far into it, let’s split hairs on the terminology a bit. A periodic sales promotion shouldn’t be confused with a discount or a markdown. A discount is a reduction in price for a particular group of customers. A sales promotion, typically, would apply to all customers.

A markdown is a “permanent” lowering of the price of goods in order to incentivize purchase so that they can be removed from inventory. This would be done for items that are slow-moving (or not moving at all).

Periodic sales promotions are a means of reaching periodic sales goals

Periodic sales promotions can help complement the efforts of salespeople and advertising. Whether your business markets to consumers or other businesses, a periodic sale can stimulate buying on the part of your customers.

Periodic sales promotions should compel your customers to purchase immediately. So, the nature of your promotion will have to be such that it bridges your customers’ culture with your sales goals. For example, are you trying to get customers to switch from a competitor? Or, are you trying to penetrate a whole new market?

Don’t launch a periodic sales promotion without a plan. Consider how the promotion will impact your business at different volumes. Decide what products/services should be included. Consider your best-case and worst-case scenarios so that you are mentally prepared for whatever your customers throw at you.

The upside of periodic sales promotions

Dead and slow inventory takes up valuable space. Worse yet, it ties up valuable cash. If you have inventory that is turning over slowly, you might consider how you can work it into a periodic sales promotion in order to make room for inventory that will actually sell. Doing so would be preferable to getting pennies on the dollar by discounting.

I wouldn’t offer a sale that revolved solely around dead and slow inventory, however. That might be a dud. Perhaps you might consider marking down dead and slow inventory extra – beyond the normal terms of the promotion. An example for a car repair business – a 10% off sale on brake replacement for President’s Day, with slow-moving tires offered at 40% off. Take advantage of the increased traffic to get the most that you can for the dead and slow inventory.

A periodic sales promotion might incentivize people who wouldn’t buy otherwise. If the promotion only runs for a few days, the sense of urgency could be increased. People who may only have a vague idea of what your business is about could be compelled to “check you out” while the sale is going on. Furthermore, the first-timers, if they are excited about what they found, might tell others.

Since a periodic sales promotion will hopefully bring in a lot of new faces, it’s an opportunity to collect some basic information. Even just an email address or a like on Facebook. Knowing more about your customers in general and those that were lured by the sales promotion specifically will help you to meet their needs better.

The downside of periodic sales promotions

Even the least savvy business person knows that if you sell something for less, you’ll make less profit on it. Periodic sales promotions will result in lower margins. The hope is – to make up for that with increased volume (quantities).

But, if you are able to pull off a successful periodic sales promotion, be careful not to begin to rely upon them. The siren song of a boost in sales/gross profit might prove irresistible if future sales don’t reach the levels you hoped. If periodic sales promotions are part of your strategic planning, then great. Run with it. Just don’t start using them as a crutch if things aren’t going as well as hoped.

When a customer purchases something at a reduced price, you might not be able to get a read on their future purchasing behavior. That is, beyond the fact that they’ll buy “x” amount of something at “y” price.

We’ve all heard the old adage “price, service, quality…pick two” when it comes to offering a value proposition to customers. If your business aims to excel in service and quality, but begins to succumb to the temptation to lower prices to boost sales, then you might see yourself transformed into a low-price provider – at the expense of service or quality.

It always comes down to…planning

Again, at the risk of being redundant, it all comes down to planning. Give your periodic sales promotions the thought and planning they deserve. Don’t just “knee-jerk.” Working it into a plan will give it the best chance of being successful.

Every industry is different. Every small business within an industry is different. There is no “one size fits all” solution to planning for periodic sales promotions. Nevertheless, since this website is SpreadsheetsForBusiness.com, after all, I took a stab at it.

Download the periodic sales promotion planning tool.

Complete the form below and click Submit.
Upon email confirmation, the workbook will open in a new tab.

weekly-monthly-holiday-sales-promotions-tool-screenshot
Click to enlarge

This is a very high-level workbook since it isn’t specifically made for any particular business/industry. Hopefully, however, it can give you a starting point for thoughtfully planning your own periodic sales promotion. Helping to ensure that it fits in with your strategic plan and helps your business reach its goals.

Periodic discounts in QBO

How to apply this knowledge in your accounting software, though? Well, here’s how you might go about it in QuickBooks Online.

We’ll look at periodic sales three different ways through the eyes of a restaurant:

  • First, an across-the-board 10% discount for everything. We’ll call it an “anniversary sale.”
  • Second, a 20% off of Mexican food and drinks promotion for Cinco de Mayo.
  • Finally, a weekly 15% off promotion for select desserts.

If you haven’t, read my previous post on the particulars of QBO price rules (levels). What follows won’t necessarily go into as much detail.

I’ll be using the sample company within QuickBooks Online Accountant. By default, this sample company is a landscaping business. For the purposes of these examples, I’ll make some changes to make the examples better reflect a restaurant business. But, if you see some odd things related to landscaping pop up in the screenshots or the video – that’s why.

In the previous example, we created a “dummy” price rule that provided no discount. We did this so that the price rule would not be applied by default during a sales transaction. However, in this example, for our restaurant, we want it to be automatically applied so that we don’t forget to give it to our customers. So, in this case, we’ll forego the creation of a “no discount” price rule.

weekly-monthly-holiday-sales-price-rules
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Anniversary promotion

The across-the-board 10% discount is easy to set up. In the price rules screen, we’ll create a rule called Anniversary Sale. This rule will only be in effect over the weekend of April 27, 2019.

Since it is an across-the-board discount, All customers and All products and services will remain selected by default. A 10% decrease in price will be applied.

Simple.

across-board-discount
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Cinco de Mayo promotion

Next, we’ll look at the Cinco de Mayo promotion. In this case, it’s only our restaurant’s Mexican fare that’s on sale. Also, the sale only runs over the weekend – May 3, 2019, through May 5, 2019.

In this price rule, we selected the products in our Mexican subcategory. We then chose to decrease the price by 20%.

weekly-monthly-holiday-sales-promotions-cinco-de-mayo-discount
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Weekly dessert promotion

Finally, we’ll tackle the restaurant’s weekly (Wednesday) discount on desserts, designed to get people in the seats during the slow mid-week time period.

This was approached in much the same manner as the Cinco de Mayo discount. Except, there is no Start date and no End date. This is an ongoing promotion. All products in the Desserts category were selected for inclusion and they were decreased in price by 15%.

dessert-discount
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Periodic sales promotions

When it comes to pros & cons, advantages & disadvantages, upside & downside posts, I always overlook a few. What are some of the pros and cons I missed for weekly/monthly/holiday sales promotions?

What other considerations need to be taken into account before a small business launches a weekly/monthly/holiday sales promotion?

Join the conversation on Twitter!

QuickBooks Online Pricing – the Full Guide to Levels + Rules

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  • To turn on price levels:
    • Gear (icon) > Accounts and Settings > Sales > Products and Services > Turn on price rules
  • To create price levels:
    • Sales (left menu) >Products and Services > More > Price rules
  • Price levels (levels) in QBO allow users to specify price changes for customers, products, or a combination of the two
    • Promotional pricing can help drive sales and profitability

What are QuickBooks Online price levels?

Price levels (rules) are used in QBO to quickly and easily give special pricing on particular items, and/or to particular clients. You can mix and match customers with products/services when setting up price levels. Also, you can broaden your selection to all products/services that fall within a particular category. For instance, maybe you want to only have a sale on installation and not physical products. Not every pricing rule has to be across the board.

Price levels can be set up to give a percentage discount, a fixed dollar amount discount, or… you can simply enter a custom price for a particular item.

Furthermore, if it makes sense in your pricing strategy, you can even increase prices. Plus, you can round to the nearest dollar, $.49, $.99, and many other amounts.

Finally, for each price rule, you can enter a Start date or End date to control when the rule is applied. Beyond that, QuickBooks Online gives you the ability to easily activate and inactivate a particular price rule after it’s created. Therefore, you can create price levels now, and put them into effect as needed.

Why use price levels in QuickBooks Online?

Promotional pricing is a valuable tool when used wisely. It can help small businesses drive sales and profitability. It might even be a coordinated part of your strategic plan.

Whether it is a periodic/seasonal sale, coupons, a referral program, a customer loyalty program, or a volume discount – there are plenty of reasons that you would want the ability to easily applying special pricing for specific customers and products/services.

Does your small business have sales promotions? Of course it does. Read this post:
PERIODIC SALES PROMOTIONS IN QUICKBOOKS ONLINE

How to implement QuickBooks Online price levels

First things first, in order to use price levels in QBO, you’ve got to turn them on. By default, they’re turned off. The option to create a price rule won’t be available if they aren’t turned on first.

By the way, in my walkthrough here, I’ll be using the QuickBooks Accountant sample company. The sample company is a landscaping business.

Go to the gear in the upper right corner and select Account and Settings.

Once in the Account and Settings menu select Sales. Under the Products and Services section, you’ll see Turn on price rules (beta). Click on that and the checkbox. Then click Save and Done in the bottom right-hand corner of the screen. Price levels are now turned on.

quickbooks-online-price-levels-turn-on-rules

Creating a price rule

Now, that price levels are turned on, you can create one. Go to the Sales section on the left (main) menu and select Products and Services. Alternatively, you can go directly to Products and Services from the gear in the upper right-hand corner.

Once in the Products and Services screen, click on the More drop-down menu in the upper right-hand corner and select Price rules. If this is your first rule, you’ll see the little intro graphic and text. Click the Create a rule button.

more-rules

Each price rule in QuickBooks Online will need a name. A rule name should be succinct, yet detailed enough for you to understand what changes it will make when it’s applied.

quickbooks-online-price-levels-enter-rules

As mentioned, you can make effective dates (Start date and End date), if you’d like to limit the time window in which this price rule will be in effect.

Next, you’ll decide whether you want this rule to affect all customers or just specific customers. And, you’ll decide if you want it to affect all products and services, categories of products and services, or individual products and services.

After that, you’ll specify what degree you want the rule to adjust the price. You can choose to adjust the price by a percentage, a fixed amount, or you can enter a custom price. Beyond that, you can specify if you want the price adjusted up or down. Price levels aren’t just for markdowns!

Do you know who your most profitable customers are? Read this post:
QUICK & EASY TOOL FOR MEASURING CUSTOMER PROFITABILITY

Finally, you’re given the option of having your price rule rounded to a specified amount. $.05, $.50, $.88, and so on…

That’s it! Those are the only variables to enter when making a price rule. You’ll see in the table at the bottom after you click Apply, the original price (Sales price) and the Adjusted price. The Adjusted price reflects the effects of the price rule you just created. Review those changes to make sure there are no surprises. Then click Save and close at the bottom.

quickbooks-online-price-levels-adjusted

Using a price rule in a transaction

In order to use a price rule, you’ll have to apply it to an individual sales transaction. So, for example, if we click on Sales in the left menu. Then, click on All sales on the top menu. Finally, click on the New transaction drop-down and select Sales receipt.

In this example, I’m just using a Sales Receipt for illustrative purposes. Pricing levels can be used in Invoices, Estimates, Sales Receipts, Credit Memos, and Delayed Charges.

sales-receipt

Populate all of the customer information at the top. Select the Product/Service at the bottom. Click the Rate drop-down box and you’ll find the price rule you just created available as an option. Select the rule and you should see the Subtotal on the Sales Receipt change accordingly.

Making a lot of sales doesn’t mean anything if you don’t collect cash. Read this post:
13 TECHNIQUES TO IMPROVE THE MANAGEMENT OF YOUR CASH FLOW

QuickBooks Online does support price levels

In the next post, I’ll explore different types of promotions that small businesses, like yours, can run, and how to create corresponding price levels in QBO.

What other types of variables would you like to see added to QBO price levels, so that they could suit your business better?

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