🌀Au Contraire: Price Elasticity & the College Graduate

When you go to college you learn terms like price elasticity, and you use them to make your dumb point to people like me that don’t have a college degree. On the surface using terms like “price elasticity” makes you sounds intelligent, but paper thin smarts aren’t worth a damn without actual business experience.

It’s like reading a book on how to perform brain surgery and then walking into an operating room and digging around in someone’s brain with a scalpel. It doesn’t work that way. You really need to have some hands on experience before you fumble around in grey matter.

In a recent post I suggested raising prices 15% to increase your net profit by up to 75%. Someone responded and said that a college freshman would not even suggest something that dumb.

And that is exactly right because what the hell does a freshman in college know about running a successful business? Not a goddamn thing.

This wasn’t the first time I have been told prices cannot be raised because of elastic demand. I have a college graduate that works for me and he suggested our pricing was subject to elasticity and we would lose a lot of business. I listened but raised our prices anyway. That was 3 years ago. Now four price increases later, we have twice the volume and twice the net profit. I am glad I didn’t take his advice. It was dumb.

First, you will never know if your pricing is elastic if you never increase prices. You can only know by doing. You can’t learn this from a professor in a safe space learning environment. You have to release your pricing into the wild.

The difference between average companies and great companies is that great companies create inelastic demand for their product or service. This means you run your business so well that it is not as vulnerable to price increases.

In fact there are many ways to create inelastic demand for your business demand.

1. You sell work faster than your competitors

2. You have more reviews than your competitors

3. You have a better sales team.

4. You have a better front end offer with higher back end pricing

5. You have a better relationship with your customer

6. You brand your business better than your competitor

7. You train your customer service better than your competitor

And then there are these factors that contribute to price inelasticity

1. Your customer doesn’t know what their service cost

2. Your customer is too lazy to switch companies

3. Your customer doesn’t know you had a price increase (you don’t tell them)

4. Your customers doesn’t care how much it cost

The trick is not to be subject to elastic demand. The trick is to constantly improve your business so that you create inelastic demand. If you can constantly make your business more sticky, more seductive, and more value driven… you can demand more money. As you inch up the value, you also inch up your pricing.

~Blue