Price to Sell Tons AND Make Money

by Shaun R Smith on January 12, 2010

I love simplicity.  I was at a seminar on Tuesday called The Disciplines of Pricing with Greg Alexander.  He went over the three main potential pricing models – cost plus, customer driven, and competitor driven pricing.  He discussed how they’re all ineffective.  At WIBO, where I volunteer, we talk about pricing being a function of the business’s cost base and capacity limits – and then factor in the competitive landscape.  I think the best model is a combination of the three.  You must know your costs and make sure that you are generating positive gross margin with every sale.  This becomes your baseline.  Then do your competitive analysis.  What are others in your market charging?  Next adjust your relative price differential based on customer valued differences between you and your competitors.  Whether done implicitly or explicitly, all great pricing follows this simple model.

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