Pricing Is The Most Powerful Lever

If there isn’t a magic price that creates a ton of value, then why bother?  The answer is that pricing is the most powerful lever you have to increase your profitability.

Let’s go through an example.  A typical well run Subway franchise may take in about $365,000 per year in gross sales.  However, by the time the food is purchased, royalties are covered, labor, rent and other overhead are paid, the owner may walk away with$60,000 of profit.  If, just through pragmatic pricing, the owner is able to raise prices an average of by 5% without decreasing volume, then the revenue will go up by 18,250.  Since the expenses don’t go up, the owner pocketed that all and now earns $78,250.  This is 30% more income for the Subway owner.  That 5% increase in price generated a 30% increase in profit.  That’s leverage.

Subway is a very well run franchise and there may not be an opportunity to increase prices at all, but what about your business?  Most businesses have opportunities to improve pricing, you just need to look for them.

Action:  How much revenue does your business take in?  How much profit is generated by that revenue?  What if you could increase your revenue by 5% without increasing your costs.  How much additional profit does that generate for you?  Is it worth working at this?