In their book, How Companies Win, authors Rick Kash and David Calhoun draw on a “McKinsey Quarterly” article to make the following quote on the importance of pricing correctly. Why is it so important? Because…
A 1 percent price increase has a 50% greater impact on operating income than does a 1 percent decrease in variable cost. More remarkably, that same 1 percent price increase has a 215 percent greater impact on operating profit than a 1 percent volume increase in sales.
Thoughts Joe and Wanda?
Joe Kerr: Great! Let’s just bump our prices a few cents. Then we can cut the sales staff and order another round of staplers!
Wanda B. Goode: Definitely food for thought. There’s more than one way to skin a cat. There does seem to be a tremendous focus on cost cutting and increasing sales to boost profits. Pricing options should definitely be considered. Of course it takes a little bit of work to develop and institutionalize a sound pricing strategy.
Here are a couple of related post…
Sustaining Profits in a Down Economy
Building a Better Pricing Structure