If you were to raise your prices 20% tomorrow and not lose any customers, what would happen to your profit margins?

If you make a 10% profit margin now, you’d be making 25% tomorrow morning. On the other hand, if you cut your prices 20%, you’d be sending out dollar bills with every order.

Which is a very simple way of saying that cutting your prices to win more customers is a very, very bad way to make more money. It’s the fastest route to more hassles & less profit. There’s always a way to charge more. And there are always people who are willing to pay more.

My dad was a minister. Which means that when I grew up there wasn’t a lot of extra money laying around. If you ask my mom, she’ll tell you that when I was 7-8 years old and forming my perceptions about money, our resources were pretty darn thin. Consequently I’m a pretty thrifty guy.

For me, there’s a natural thrill to taking a single dollar bill and stretching seemingly impossible value from it. It’s one of the things that makes me a good marketer. When the president of a company tells me that it costs him $50,000 to acquire a new customer (happened a year ago), I get a buzz. Because I know I can probably slash that cost dramatically and bring him a whole bunch more customers at the same time.

Is “Cheap” a Virtue?

But there’s a downside to that thrift, too. I grew up thinking that there was great virtue in having low prices. Wal-Mart / Kmart mentality. And that’s a very bad way to think when you’re a marketer, because if you’re not the 900 pound gorilla in a commodity market, you’ll get smashed by him. One of the things that I had to learn was that being the premium priced guy in town is a good thing. Not only does it mean your profit margins are a whole lot fatter, but you also get more respect.

If you’re thinking that cheap is a virtue in your business, it’s time to un-learn that misconception.
Here’s the real deal:

Most companies ask themselves: “How low do we have to go to get customers to buy?”

But here’s the real question you should ask yourself:

“How do I add enough value to what I already sell so that people will pay twice as much for
it?”

That’s exactly what many companies including Whole Foods and California Pizza Kitchen have done. And when you’re a marketing maniac like I am, your eyes and ears are open for examples everywhere you go.

Answer that question in your busines & you’ll be surprised at how fast your company can grow.

Photo by Craig Murphy cc by-sa

About the Author

Perry Marshall has launched two revolutions in sales and marketing. In Pay-Per-Click advertising, he pioneered best practices and wrote the world's best selling book on Google advertising. And he's driven the 80/20 Principle deeper than any other author, creating a new movement in business.

He is referenced across the Internet and by Harvard Business Review, The New York Times, INC and Forbes Magazine.