Pricing Table Topics: King of Clubs – Willingness to Pay Drives Pricing

This one is the King of Clubs from the Impact Pricing card deck. 

Sadly, too many companies still use cost-plus pricing. We take the cost of manufacturing or creating something, we add a margin, and there's our price. It's easy. We know we're making margin, but are we maximizing our profit? Maybe we're pricing so high that we miss out on some customers, or maybe we're pricing so low that we're missing out on what some customers would be willing to pay us.

Think about it this way. Imagine that it costs you $10 to build something, all in. Whatever costs you want to consider, great. And you have a buyer out there that's willing to pay you $100 for it. What's the profit-maximizing price that you could charge? Well, it's a hundred dollars. If you charge 99, you left a dollar on the table. If you charge a hundred and one, that buyer's not going to buy. And so, a hundred dollars is the best you could possibly do with that buyer. 

But what if instead of costing you ten dollars, what if it cost you twenty-five dollars to make it? Same buyer. What price would be the profit maximizing price? Well, obviously it's still a hundred dollars. Mind you, we make less money because our costs are higher. But the best we can do price-wise is the $100 because that's what our customer is willing to pay. 

When we think about pricing this way, we're not saying costs don't matter to business. What we are saying is costs don't really matter to us setting our price. Yes, we want to make sure our prices are above our costs. We want to make sure we're making money. So, think of it as a limit. But it isn't the thing that drives our price levels.

We hope you enjoyed this example of Pricing Table Topics. What you just heard was done without a script. If you want to get better at speaking about pricing and value, grab a deck of our cards, pick a card, read the saying, and then talk for one to two minutes about what that card says. You'll become a better speaker and expert.

If you have any questions or feedback, please email me, mark@impactpricing.com. 

Now, go make an impact.

 

Connect with Mark Stiving: 

• Email: mark@impactpricing.com
• LinkedIn: https://www.linkedin.com/in/stiving/