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Digging deeper into more sources and resources of that McKinsey study re: how your best chances at improving your profit rest more on changing how you price than looking for higher volumes or cost efficiency, I ran into this graph presented (and visiting a more updated version of that report in 2016) by Tim Williams, pricing specialist. You can check out his full presentation (40 min —you’ll find this explanation within the first minute) on this here.
The trend to see.On the first study (2003) the impact of raising your prices 1% impacts your profit 8%. On the second one visited here (2016), that same 1% raise, has an impact of 11% on your profits. And here’s why it makes sense: it’s because your pricing has very little to do with your costs. Improving your costs will have a slighter effect on your profit, and it can have a limit. Shifting your focus from your costs into your pricing (aka what your client values and wants) improves the potential you can get. Why? Because it focuses on capturing a part of the value your client perceives. And that’s your game-changer. |