One of the most counter-intuitive pieces of advice that I ever received from the Surfing Guru was:

You can increase your profits by halving your number of clients

The idea is that if you double your prices, you will lost a lot of customers.  But if you only lose 40% of them, you end up ahead in profits.  Even if you lose 50% of them, you’re still better off because you have less clients, which means less issues to deal with and less overhead to support them.  I wrote about the idea of increasing your revenues by decreasing your clients a while ago so I won’t go into any more detail here.

If You Don’t Double Your Prices, At Least Increase Them

I was reminded of this concept this past week when I read an article from MarketingExperiments.com about finding your ideal price points.  They get more technical with the details than I have but they are measuring the elasticity of demand to price.  The less elastic it is, the more profit you’ll get by increasing the price.

The conclusions they came to in each of these experiments is that by increasing prices, you are able to get more profit.  One of the big reasons for this is that a higher price usually drives a higher perceived value.  Clients feel that if you’re charging that much, there must be a reason.  A caveat with this is that you MUST deliver on that.  If there is any indication that your product is not of the highest quality, customers will be much more likely to jump ship than if it were priced lower.

Use the Web To Test Out Your Prices

One of my favorite parts about working in an online world is that it is very simple and inexpensive to test out different variables.  If I lived in a completely offline world, any experiments that I wanted to run would have to go through a much longer sales cycle.

By setting up offer pages on the web, I can easily test different price points of my products.  I might not be making the final sale through these but if I still get the same response for a higher price, I can roughly determine the total profit that I should expect.

Whatever business you run, try testing out slightly higher prices from time to time.  Just make sure you support the higher perceived value.