Pricing for Profitability

PRICING -- How we can help you to set the price for your financial service?

*      Think of cost as the floor - you must set prices above the floor to cover costs. If you decide to set prices below cost, it should be for a specific purpose, such as to gain market entrance;

*      Think of customer perceived-value as the ceiling - this is the maximum that the customer will pay for the perceived value of the financial service.

Somewhere between the floor and the ceiling is probably the right price for your financial service price that will enable you to make a fair profit and feel fair to your customers.

To get a handle on the minimum price for your financial service, we use what is called a 'break even analysis'. This analysis shows how much revenue is needed to cover costs, and lets us look at different projections for prices and volumes.

For a financial services business, we will add up all the fixed costs (recurring expenses that have to be paid every month such as rent, insurance and utilities), and then we add up the variable costs (the costs that vary directly with the amount of service provided such as the hourly pay for a contractor on a specific project).

The next step is to assess the customer's perception of value for the financial services, and determine whether prices can be set at a higher level. To understand the customers perception of the value in your financial service, we look at more subjective criteria such as customer preferences, convenience, quality, image, benefit or cost saving to the customer through the answer to the following questions:

- How do your customers describe what they get for their money?

- Do they save a great deal of money or time?

- Do they gain a competitive advantage from using your financial service?

- Is it very convenient to use your financial service rather than try to do it themselves?

- What are the customers choices?

- What does the competition charge?

With this information, we can begin to understand the maximum price your customer will pay for the benefit received. Once you understand your cost floor and your value price ceiling, you can make an informed decision about how to price your financial service.