This one may be intuitive, may not be intuitive, but it turns out that if your fixed costs change, for whatever reason, if they go up, if they go down, it really should have no impact whatsoever on your pricing. For example, let’s say you need to buy a new piece of factory equipment, and it’s really expensive, and it makes your fixed cost go way up.
Did buying that new piece of factory equipment for you change your customer’s willingness to pay?
No, it didn’t. Customers are still willing to pay the same amount. They still can choose between you and a competitor.
Well, did you changing your fixed costs changed the way your competitor prices for whatever reason?
No, it doesn’t.
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“If your fixed costs change, for whatever reason, it really should have no impact whatsoever on your pricing.”
– Mark Stiving
The only thing that matters to us when we’re doing pricing is thinking about how our customers are making decisions and how we can make optimal decisions based on that. And I can assure you that your fixed costs have absolutely nothing to do with how much your customers are willing to pay.
For that reason, your fixed costs never matter to pricing.
We hope you enjoyed this memecast. If you have any questions or feedback, please email me [email protected].
Now go make an impact.
Connect with Mark Stiving:
- Email: [email protected]
- LinkedIn: https://www.linkedin.com/in/stiving/
