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How to Price Your Offer
Why Pricing is Key in Making a Profit in Your Business
BUSINESS CASE STUDY FROM AN 8 & 12 YEAR OLD:
They put on their Bears jerseys and had a plan to sell snow cones at their brother’s baseball game.
I asked them how much they were planning to sell the snow cones for…
Their pricing decision was BOLD but it made EVERY bit of difference.
Initially, Natalie said they would charge $.50 for a snow cone.
Then we did some math.
We tallied up their expenses. Most of their expenses were sunk costs i.e. we own the table, snow cone machine, power cords, and even had a bag of ice. But they needed a few more flavors.
Their COGS (cost of goods sold) was $9.50.
When I asked the kids how many they thought they could sell, they thought MAYBE 10…
Then I showed them how 10 x $.50 would mean GROSS sales of $5.00….and NO money in their pocket after 2 hours or more of hard work.
Natalie didn’t like that too much.
Rocco pointed out that NEXT time though, they would have left over syrup and ice and their COGS would be ZERO…
Natalie still didn’t like working for nothing TODAY.
I asked why not charge MORE.
They said how much?
I said how much would YOU pay for a snow cone on a hot day when there’s NOTHING else around and you’re stuck at a baseball game?
He said, $2 or $3….
We all agreed $3 might be a tough ask…not impossible but for their first run, a stretch. They needed to build confidence.
They settled on $2.
Their mother thought $2 was HIGH. MY mother thought $2 was high.
But the MARKET spoke loud and clear.
They had a tough time with their location.
No one could see them…
So Rocco walked the crowd and SOLD directly to the people.
Natalie locked down ops/customer service.
They sold 9 Snow Cones.
No one balked at the price.
They closed up shop a little early and chilled for the remaining half hour of the game.
9 x $2 = $18 gross
had they charged $.50 they would have grossed $4.50
had they charged $1 they would have grossed $9.00
Pricing was the KEY to PROFITABILITY
Imagine what they can do when they’re location is in the middle of the ACTION and they get their system DOWN.
The race to the bottom (in pricing) is usually the RACE TO BANKRUPTCY…
Consider RAISING your prices, INCREASING value, and being efficient over lowering your prices to compete with “everyone else”.
Thanks Natalie & Rocco for an AWESOME effort and wonderful lesson!
I’m Matt Dubiel and I approved this message.