2018年8月19日 星期日

Seth's Blog : All other things being equal (simple contribution analysis for pricing)

All other things being equal (simple contribution analysis for pricing)

If you make a product that costs $5 to produce and package, how much should you charge for it?
I don’t know.
But there’s a simple bit of arithmetic you can do to understand sensitivity in pricing.
Should you charge $7 or $9?
Well, if you charge $7, you make $2 a unit.
If you charge $9, you make $4 a unit, or twice as much.
Which means, all other things being equal, you’ll need to sell twice as many at $7 as you’ll need to sell at $9.
It doesn’t feel that way, but it’s true. 100 sold at $9 is more profitable than 180 sold at $7. And to take it a step further, you’ll need to sell 800 at $5.50 to make as much as you would have made at $9. Eight times as many.
No one knows what your demand curve is going to be like, no one is sure what impact your pricing will have on all the other items you sell.
But be honest with yourself about contribution.
Story is a price, it’s a price we tell ourselves and others about what we have to offer. But price is also the path to being able to stay in business.

[Unrelated helpful tip: A significant bug exists in Word, one that just cost me two hours. If someone sends you a Word file as an attachment in Gmail and then you drag that to Word to start editing it (without formally downloading it first), Word will let you work on it, save it, work on it some more, close it–and then your work is gone forever. Don’t do that.]

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