The Amazing 1% Price Increase

BY Jeff Cobb

When I was speaking earlier this year at Great Ideas I made a comment about pricing that obviously caught the attention of the attendees. It had been my intention to post it here, but I forgot about that intention until this morning when I was reviewing an article I wrote a while back on pricing online education. (You can find this, along with a lot of other free resources, in our resource center.) The comment, in a nutshell, was that while many organizations resist raising prices – particularly in tough economic times – a small increase can, in fact, have a significant impact. Couple this with the fact that many organizations under value – and, as a result, under price – their educational offerings in the first place, and there is a compelling argument for at least considering price increases. Here’s what I wrote in the article:

[I]t is well established that an increase in price is one of the most effective ways to increase profit.  A study by the consulting firm McKinsey & Co. way back in the 1990s showed that a 1% increase in price translates into an 11% increase in profits. On the other hand, increasing volume by the same amount resulted in only a 3.3% increase. Cutting variable costs by 1% resulted in a 7.8% increase and cutting fixed costs – only a 2.3% increase.

The McKinsey study has been cited in a wide range of places, but I came across in Todd Sattersten’s excellent eBook Fixed to Flexible – which I highly recommend. Actual results at your organization may vary, of course, but this is certainly an area where some judicious experimentation on an ongoing basis is warranted.

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