Desert Safari
Pricing and profitability logic applies anywhere—even halfway across the world. On a recent trip, I went on a desert safari in Dubai, and, not surprisingly, a professional photographer captured every moment on film. At the end of the day, as we were finishing our meal in the desert camp, he went around the group to try to sell us the pictures from the day. He showed us three printouts: 50 AED for one, 100 AED for two, and 150 AED for three, about $40 US. At the end of the evening, most of the photos were left on the table. The photographer went around again, trying to sell his photos. Everyone on the safari had cameras or smartphones, and we all had taken pictures throughout the day and evening. His photos may have been a bit better and a great souvenir, but the price was too high for most. What we had was sufficient. If one did purchase one photo, there was no incentive to purchase an additional one.
Some customers tried to negotiate with the photographer. He was an hourly employee with no negotiating power. In the end, he left with most of his photos. Yet the company incurred the cost of hiring a photographer and printing the photos. Had it priced more competitively, it would have made money.
Here, like in Dubai, pricing competitively for a commodity when the alternative is readily available dictates sales. For example, you can now shop for anything and everything online through Amazon, where competitors offer their products and you see the prices. As a result, brick and mortar stores like Best Buy find themselves with large inventories. Customers go in to see the available products physically, then comparison shop and make the final purchase online.
Consider these 5 Pricing and Sales Myths
1 – Increasing price increases sales revenue.
2 – Increasing sales revenue increases profits and cash flows.
3 – Billing rates are crucial in the service industry.
4 – Cost plus is a great way to price products and projects.
5 – Any additional sale is better than no additional sale.
Call to Action
Wherever you are, whatever your industry, consider the following to grow exponentially, fast:
Nicole’s 10 SMART Pricing Rules
- Know your break-even point.
- Any sale above the break-even point is pure profit and cash flows.
- Volume of sales trumps price in competitive markets.
- Know your “contribution margins” (how much each affects net cash flows and profit).
- Maximize “contribution margins” (sales minus all incremental costs).
- Consider volume and early payment discounts for complementary products or services.
- Know when additional sales exceed capacity.
- Do not price below your variable costs.
- Never ever ever stop looking ahead at your pipeline.
- Your financial team should lead with the above.
