The Art of Pricing

Imagine that you woke up one day and had been endowed with the power to see hidden profits for your business.

You would wake up on this particular day and as you padded around for that first cup of coffee, you’d see a few dollars peeking around the coffee maker. You’d open up your computer and a ten dollar bill would be wedged between the screen and keyboard. You’d sit down to write something and pop right back up again because you actually sat on a pile of quarters, nickels and dimes.

Everywhere you looked and walked … everything you touched … was spilling out money.

This money could be yours. But it isn’t — because you haven’t priced for it. It is money that still belongs to your customer because you haven’t created the opportunity for them to give it to you.

Every business has hidden profits. And hidden profits are those little piles of money that we can’t see because we’re not yet endowed with the power of seeing them. The good news is that all of us can learn to start seeing these opportunities for increasing our profits. Rafi Mohammed’s book “The Art of Pricing: How to Find the Hidden Profits to Grow Your Business” can help you do just that.

Pricing is powerful stuff and it’s a shame that it’s often the most ignored component of the marketing mix. Granted, it’s not quite as sexy as a pretty ad campaign. But advertising costs money — and a good pricing strategy can actually MAKE you money. So where would you rather put your time?

Let’s get to the meat of this book.


Where to Start with Pricing

The biggest lesson Rafi teaches us is that setting a profit-building pricing strategy starts in YOUR HEAD.

The first step is understanding what you offer that your customers value. For example, if you’re walking through a big city like Washington D.C. or New York on a sunny day, you’ll see lots of vendors selling T-shirts and souvenirs and umbrellas. He says, “So, at the first hint of rain, street vendors double their prices of umbrellas.” That’s value.

The second key to finding hidden profits is to make it easy for your customers to choose you (translation: give you money) by giving them a variety of price levels and offering levels to choose from.

Example of Pricing

A great example of different price levels to offer customers and one that Rafi gives in the book is the story about his buddy Dave, the restaurateur. Dave wanted to grow his customer base beyond high-spending foodies. Take a look at this example from the book. Dave’s original question was “should I charge $18 or $31 for a dinner?” Here’s what Rafi writes:

“After some discussion we designed a set of pricing strategies that included early-bird specials, senior citizens’ discounts, regular menu prices; $200 annual charter memberships that included a 25% discount on all meals for a year; discounted three-course meal bundles, lower priced bar menu; premium chef’s table seating and hob-nobbing with the creative genius behind the meal.”

All that instead of charging either $18 or $31! Who knew that so much creativity could be included in pricing a restaurant meal?

How to Avoid Pricing Too Low

Sometimes we as business owners have a hard time understanding the value we bring to the table. I often see business owners (especially new business owners) under-price.

We are often the worst judge of the value we provide.

To cut through the temptation to price too low, and understand the true value of what you offer, Rafi suggests a value-decoder process. This process walks you through 5 steps to nail down a core price that you can work from to build offerings that will deliver more profit. You can find an interactive version of the pricing tool on Rafi’s Pricing for Profit website.

Read the Book

This is one of my favorite pricing books — and I think it will be yours too for this one reason: it’s written in plain simple English. It contains several process lists and strategies that you can actually read about and implement today.

One caveat, however: while this book isn’t heavy on the math component — that doesn’t mean that you can wing or swag your way through the strategy. I can’t stress enough how important it is for you to have a grasp on your costs. How much does it cost your business to exist? How much does it cost you to fill an order? What is your customer net worth? Don’t attempt any of these strategies without knowing and understanding your costs and loss leaders.

This book is an excellent read for business owners, marketers and anyone who has responsibility for and can implement pricing strategy for their business.

Other Resources

Finally, I’d like to refer you to more information. First, there is the radio podcast interview of Rafi Mohammed that I co-hosted on Small Business Trends Radio. You’ll hear directly from Rafi with more insights.

Second, I’d like to refer you to my companion article “8 Pricing Strategies you can Implement Right Now.” You may pick up a few tips for setting your prices, using psychology.

Image: Amazon

Ivana Taylor Ivana Taylor is the Book Editor for Small Business Trends. She is responsible for directing the site’s book review program and manages the team of professional book reviewers. She also spearheads the annual Small Business Book Awards. Ivana publishes DIYMarketers, where she shares daily do-it-yourself marketing tips, and is co-author of "Excel for Marketing Managers."