Hey there Rainmaker, let’s talk about raising prices…
Specifically, how you can sell the same product, but for 29% more revenue — and 60% more profits!
I want to use a client as an example, but I’m not going to give away too much info… Because we’re talking about competitive metrics in his business and I don’t want to share those when I shouldn’t.
So you’ll have to suffer from having vague generalities on details that don’t matter as much, in favor of those that do…
Last year I was visiting with a client, having a 1-day on-site consultation. We got to discussing a number of different products, including his highest dollar value, highest profit-per-transaction product.
At the time, this was a $2,400 physical product.
It’s completely proprietary, too. He’d looked around the market for a product that fit his very exacting specifications, hoping to find one to buy. When he couldn’t find one that worked for all his needs, he made it.
And so although there are a lot of superficially competitive products out there, an easy case can be made for why it’s unique (with his “I couldn’t find what I wanted so I built it myself” story which is almost always compelling)…
And in fact, why the unique aspects of this product made it SUPERIOR to the competitors.
I asked, “Why are you charging that much?”
The answer was something along the lines of, “That’s where we started when we launched version one of the product, and we haven’t really raised the price from there…”
Not a huge sin — there’s probably a few products just like that, in nearly every successful business on the planet.
But then I asked, “Have you tested a higher price?”
“We’d like to…”
We stopped everything.
We started hitting as many websites as possible selling comparable and competitive products.
Here’s what we discovered… This product was selling at a number that was price-competitive with LESSER models from competitors. Because there wasn’t any product on-par on the market, we couldn’t compare that.
But what we concluded was that we needed to raise the price!
Lacking much of a guide, we rounded up. Way up.
We went from $2,400 to about $3,000. In the process, the client went from offering free shipping, to charging a discounted shipping price. This is a BIG product, so shipping alone is over $100.
So in short, we raised the customer out-of-pocket price from about $2,400 to $3,100.
And, they tested it.
Sales didn’t go down. They didn’t go up, either.
But revenue per sale went from $2,400 to $3,100. A 29% increase. But it didn’t cost the client a penny more to sell at the higher price. So profit per transaction went up 60%!
All while selling just as many as he did before.
Now, this is really good news for me. Because of how our deal was worked out, I get paid a percentage of that profit (margin after cost of goods sold)…
Which means I’m getting paid 60% more for every one of these products I sell!
And because my promotion for this looks like it’s going to be a big hit, that’s going to add up to a LOT of money!
And this is important. When we’re doing this, the clients are just as happy paying $3,100 as paying $2,400. Sales didn’t go down. There wasn’t a negative reaction to the higher price. They’re buying it because they believe it’s a $3,100 value. They are happy in both scenarios.
Higher prices are great for your business — now here’s how to know when you can raise them!
I’m going to give you two criteria that you can use to judge whether or not a product could succeed at a much higher price.
I’m not talking “keep up with inflation” price increases — I’m talking, add 30% more revenue and 60% more profits price increases, if not more.
Here you are…
— Is the product proprietary? My client designed and manufactures the product himself. There’s nothing that matches its specs anywhere in the world. You can’t price shop — you can’t go down the street and buy the same thing elsewhere. Yes, there are alternatives out there in the market. But we work hard to establish buying criteria by which all other products in the space fall short. (This is really easy through the “I couldn’t find what I wanted so I built it myself” story — it’s built in.)
— Does the product offer a good cost-benefit ratio? In short, when the customer adds up in their mind all the benefit that they’re going to get from your product or service, is their sense of value overwhelmingly more than spending that same money on other things? This is very dependent on the buyer’s motivations. But if their perceived value is HUGE and even your higher price is relatively small, you can easily bump that price up. And we’re not talking just ROI. I wrote the other day about using a “survivable catastrophe” as a way of illustrating the problem your product solves — what’s the value of surviving that catastrophe?
If your product is a commodity — meaning there are a number of others who sell the same or similar items and you provide no tangible unique benefit… Or if your product already appears to have a price in line with the value it delivers… Then you’re probably range-bound in your pricing.
But if your product is unique and proprietary — if they want it, they’ve gotta come to you — and the value delivered is seen as much greater than the cost…
Well, test a higher price.
See what it does to your response, your revenue, and your profits.
And be sure to calculate it carefully. Sometimes fewer sales can lead to much higher revenue and profits. And be worth it, especially because they mean less customer service and fulfillment costs.
Yours for bigger breakthroughs,
Head Rainmaker, Breakthrough Marketing Secrets
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