There are three key principles to developing an effective pricing strategy that I’ve seen hold true across a wide variety of businesses, but especially so with those that sell premium products and services. I call them the three Ps of pricing, positioning, profitability, and preparation.
Your positioning in the market determines whom you are best suited to serve. Clearly communicating this will shorten sales cycles and accelerate revenue growth.
Top sales organizations know the fastest way to accelerate revenue isn’t about getting to “yes” with every customer, it’s actually about getting to “yes” or “no” as fast as possible with the right customers.
You’ll drive more revenue growth and increase profit margins when your focus is on selling to your high-profit customers (those that fit your positioning) and quickly moving on from low-profit customers that take up bandwidth and energy (customers who require steep discounts or too much of your company’s time and resources). When you create your pricing strategy with the right customers in mind will ensure you don’t sacrifice profitability to chase top-line revenue.
Your best customers are generally willing to pay much more than you think if you can effectively communicate the benefits you offer such as reliability, assurance, quality, and service.
You should always be looking for opportunities to increase profitability and the first place you should look is with your pricing. This can be a scary prospect for business owners who are afraid to lose customers by increasing their prices but this shouldn’t hold you back.
Start your journey by collecting insights from your customers, analyzing their purchasing trends, and doing quality market research in your industry. You’ll gain the insights you need to confidently increase the pricing on your best-selling products, while simultaneously adding a ton more value for your ideal customers who fit your positioning.
Once you’ve done your homework, it may be as simple as updating your sales and marketing messaging to align with what your best customers value, while other times it may require you to add low-cost features or services to your offerings. The bottom line is that the more margin dollars you gain by strategically increasing your prices, the more you can invest in continuing to improve your products and providing a world-class customer experience.
Preparation is key, even the best pricing strategy is only as effective as the execution.
Your sales and marketing team needs to be prepared with the right training and coaching so they can effectively communicate value to your customer, especially if the concepts of your revamped pricing strategy are new to them. The best approach is generally to include those who will be involved in the execution of your new strategy early on in the planning and to provide ongoing training to them throughout the development process. This will allow for a higher level of adoption from your team and a much better experience for your customers during the implementation of your new pricing strategy.
In summary, when developing a new pricing strategy it should always result in clear positioning around your best customers, increased profitability, and support for execution. Though there are more considerations than just these three principles, they should help guide your process while developing an effective pricing strategy. These principles primarily come from years of experience developing pricing strategies as a sales executive and have continuously been informed and reinforced over many more years of advising business owners who are selling into a wide variety of industries.
If you are thinking about having an expert review your current pricing strategy so you can get more clarity and direction on increasing your profitability, send us an email at email@example.com to schedule a time to chat.