I’M NOT AN ECONOMIST, and I don’t even play one on TV. However, I do have an MBA with an economics concentration, and so I tend to view things through an economics lens, sort of the way Elizabeth Zott views things through a chemistry lens. (Read Lessons In Chemistry if you are a woman in business — highly recommended!) Like EZ, I’ll try to make the econ more palatable and relatable so we can all be on the same page as far as pricing goes.
As a public service announcement to start, here are a few rules for pricing your sign projects at your sign company:
- It’s Your Company! Price the jobs any damn way you want.
- Not every project is worth getting, regardless of the price.
- There will always be another outlet offering a lower price, even if you cut your price to the proverbial bone.
- The higher you set your prices, the more profit you will make.
- The more profit you make, the more you will be able to reinvest in people, equipment and services to offer.
- The better the people, equipment and services you have, the more you will be able to charge. This is called a “virtuous circle.”
Caveat: You need to be able to “back up” your higher price and prove you are worth it (more on this in a later column).
Let’s do some quick math to demonstrate how charging a higher price for fewer signs will yield a higher profit:
- Option 1: Lower Price
- Sell 100 banners at $100 each for $10,000 in revenue
- Cost of goods sold at $50 per banner yields $5,000 in gross profit
- Option 2: Higher Price
- Sell 80 banners at $125 each for $10,000 in revenue. (One law of economics states that if you raise the price of a product, you will sell fewer of it. More on this in an upcoming column.)
- Cost of goods sold at $50 per banner yields $6,000 in gross profit (80 banners x $50 each = $4,000.)
Result: you’ve sold 20 fewer banners and made $1,000 more gross profit. I’ve clearly over-simplified this demonstration, and certainly an argument could be made that the per-unit cost of the banners might go up with fewer ordered. But I don’t think that is material to our discussion, pun intended.
In addition to making more money, you won’t have to work as hard — expending probably 20% less time and energy — than if you had to produce more banners. There will be fewer chances for errors and reprints. It’s less likely that you’ll hear about your staff not having enough time to get these jobs done. You’ll see lower bills for your vinyl, less wear and tear on your machines, not as much toner to buy. It’s a win-win!
Assuming I’ve convinced you that you can make more money by selling fewer products at higher prices, let’s move on to the next important topic… How can you realistically charge more for your products than your competitors do?
That will be the topic of my next column.