Lowering Your Price to Sell More?
Aug 23, 2024In a recent episode, Shannon delves into the common question: Should you lower your price to sell more? Let's explore why it might not be the best approach for your business.
Before jumping to conclusions and lowering your prices, it's crucial to diagnose the real issue. Shannon advises, "Don't apply a prescription without diagnosing the problem." In this episode, a member of the CFO on Demand community suggested lowering her product price to increase sales. Shannon's critical question was, "Is price an objection source?" Surprisingly, the answer was no. There was little to no resistance to the current price point.
Shannon identified that the core issue wasn't the price but a stagnation in customer base growth. The member admitted that she was using referrals from existing customers to acquire new ones but wasn't fully leveraging this approach. If your current customers are happy and not objecting to the price, focus on maximizing the avenues that are already generating revenue. For our member, this meant doubling down on referrals.
Shannon’s advice was clear: Forget lowering your price. Instead, utilize your existing customer base to grow your sales. Communicate effectively by ensuring all your customers know about the referral program. She suggested an automated email every month reminding customers of the referral program and the benefits they would gain from it. Offering an attractive benefit for referrals can motivate your existing customers to bring in new ones. Also, track and analyze your referral sources and their effectiveness to optimize those channels further.
Price adjustments should be data-driven decisions, not emotional reactions. Shannon talks about the philosophy of "More Better New," a concept by Alex Hormozi. The idea is to do more of what’s working, improve and optimize your current efforts, and only then venture into new strategies. Before considering a price drop, evaluate your margins and understand the impact on profitability. Lowering your price doesn’t create demand; it just lowers your income per sale. If demand is the issue, marketing and improving your product may be better solutions.
Lowering your prices can have several unintended consequences. A lower price might make your product appear less valuable and erode your brand’s perceived quality. Reduced prices can squeeze your margins, especially if your costs rise due to inflation or other factors. Shannon points out that if you're operating on slim margins, reducing the price can significantly hurt your business. Once you lower your prices, it’s challenging to raise them again without facing resistance because customers get accustomed to the lower price. Lowering your price might also trigger a price war with competitors.
Shannon’s insights are a powerful reminder that business decisions should be strategic and informed by data, not emotions. By dissecting the real issues and focusing on effective solutions like leveraging existing customer referrals, you can drive growth without cutting into your margins. For entrepreneurs feeling the pressure to increase sales, remember Shannon's words: "Lowering your price doesn't create demand; it simply lowers your price." Always back your decisions with hard data and consider the long-term implications before making changes.
What you'll hear in this episode:
06:18 Plan, metrics, data - addressing sales objections effectively.
08:28 Consider pricing impact on margins, adjust accordingly.
If you like this episode, check out:
Product or Experience - What is More Important?
How to Prepare to Sell Your Business
The Framework for the Perfect Offer
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
