The 1% Windfall

Pricing Your Way to Higher Profits

Pricing your product or service appropriately is an excellent way to increase your profits. And it’s not just about raising your prices, although the “1% windfall” is illustrative: The average bump from a 1% price increase is an 11% gain in profits. And if Sears, Amazon or Walmart raised their prices by just 1%, their operating profits would soar by 155%, 23% and 18%, respectively, based on the effect an income increase would have on their market capitalization. Pricing is a corporate and marketing strategy that offers a wide variety of tactics and options for boosting profitability.

“Value-Based Pricing”

Don’t just use cost-plus pricing that reflects your expenses. Instead, use value-based pricing, which reflects what customers are willing to pay for your product rather than what it costs you to produce it. If you charge only one price, you may miss out on business from potential customers who want to pay more or less than your set fee. Street vendors understand this concept: They raise the price of umbrellas when it rains since they know passersby will pay extra to stay dry.

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