Episode A.010 Pricing Strategies & Methods

Fundamentals of Pricing

1. Market Based: price is fixed with no chance of adding value, requires the company work backwards from price to inventory to determine costs - cost problem;
2. Cost Plus: price is variable if value is demonstrated, requires the company to show value to justify the price - a value problem.

Targeted Margins per Unit

• Industry Average: for your industry and region, what is the average margin per unit sold;
• Competitor Average: for your immediate competitors, what are the average margin per unit sold;
• Desired Margin: what margin do you need per product and/or service to meet yearly profit objectives, hint - go for 60% and work backwards.

Project Volume per Product and/or Service

• Total Capacity in Units: based on the manufacturing capacity of your facility (products), or available hours (service);
• Break Even Point per Individual Products and/or Services in Units: how many do you have to make to cover all of the direct and direct costs of making the product or delivering the service;
• Total Capacity per Individual Products and/or Services: for each individual product or service how many could make and/or deliver if you only sold this.

Value Ladder

• Entry Offer Price: free or fee, how many do you plan to make, what is the impact on overall capacity, how much revenue will this contribute;
• Basic Offer Price: how many do you plan to make, what is the impact on overall capacity, how much revenue will this contribute;
• Core Offer Price: how many do you plan to make, what is the impact on overall capacity, how much revenue will this contribute;
• Advanced Offer Price: how many do you plan to make, what is the impact on overall capacity, how much revenue will this contribute;

​Strategic Pricing

• What is the Core Offer: what are you going to feature and drive customers to purchase;
• What is your pricing per unit, does it drive customers to purchase the core offer.
• Production Mix per Individual Products and/or Services: the distribution of work (production or hours) for all elements of the value ladder;
• Forecast Revenue and Margins: if successful with pricing and marketing emphasis what is the forecast for sales and margin;
• Adjust Offers, Pricing, and Production as needed; 2 questions - if price is market based, does it fit?; if price is cost plus, have you made the value case?