John is struggling. He sells 100 units a month for $100, and makes only 1% profit, or $100 a month.
He is afraid that if he raises his prices he will lose business. But what is happening now is not working.
So, John raised his prices to $110. He lost 15% of his customers who only liked his low prices.
So now John sells 85 units a month for $110, but makes 16%.
John now makes $1496 a month – 15X what he used to make.
John now invests in more marketing and in adding value to his offering, attracting more clients and better employees. John can grow even more.
John is happier and excited.
Thank you for putting this in a story form. It’s helpful!
YES YES and YES!!! I just had the same convo with a dealer who lowered his prices last month… OUCH! We went through the math and he is now raising back up and has recommitted to getting better at creating value with his customers.
Love the principle, and its absolutely true …. but your math is a bit off. Unless John’s cost per unit dropped from $99, then his new margin is 10%. (85 units x $99= $8,415 cost vs 85 units x $110= $9,350 sales)
STILL love the lesson taught here though, and love your daily content! I read EVERY ONE!
Excellent advice Larry, especially with the level of inflation we are all experiencing.
Larry – Excellent advice! A lot of businesses don’t realize they have to raise their prices because of inflation. Enjoy reading your daily blogs…
I love this! I’ve seen it work first hand!