Every business owner wants to find the right price that maximizes their profits. Once you know the prices of competitors, do you know how to set your price to maximize your profit?
The free pricing analysis template shows you whether changing your price will increase or decrease your profits. More importantly, it shows the price or volumes you need to breakeven on your price change. It’s easy to use because it’s based on Microsoft Excel so you can use Excel or Google Sheets for your analysis.
Many owners make the substitution thinking error by answering the question “was my price change profitable?” with the question “Did my sales go up?” Your sales could go up but your profits may still go down if you don’t have the right change in volume.
You can also use this template to model pricing for new products.
Key components of evaluating your price change’s impact on profits
This price change analysis template guides you through the key components of evaluating whether your price change is a success:
Cannibalization is a massive hit to profits that owners often overlook. Cannibalization is caused by reducing your price to existing customers when you could have sold to them at your old price or a higher price.
For example, let’s say you usually sell your widgets at $100 but you lower the price to $90 to drive growth. If you normally sell 1,000 widgets, your profit dropped $10,000 ($100-$90=$10 X 1,000). Do you know how many more widgets you need to sell at the lower price just to recoup this lost profit?
Maybe your accounting records or a profit analysis shows your average cost per product. DO NOT USE THIS TO PRICE YOUR PRODUCT. This is such a common mistake. The only relevant costs are the actual save or incur by changing your price. I have a whole post about marginal profitability analysis to learn more about this. This template only considers the relevant marginal costs and revenues.