If you’re serious about accelerating the recovery…

…raise your prices.

Let’s stop waiting for government officials to get us out of this recession.  We can do a more effective job than they can.  How?  By raising our prices.  Before you write me off as a lunatic, let’s take a quick look at the realities.

• You’ve already lost the customers who don’t value what you offer.
• The customers who do value your offerings are still with you.

Assume that you raise prices by 3%.  That’s typically not enough to cause your customers to switch.  There are three reasons why they won’t switch besides the fact that they may like you:

• Human beings naturally resist change.
• Change involves risk – fear of the unknown is one of our greatest fears.
• There is additional paperwork associated with changing suppliers.

When we apply that 3% price increase to the 2009 GDP (Gross Domestic Product) of $14.2 trillion dollars here’s what we get:

• $427 billion in additional revenues.
• $171 billion in tax revenues based on a combined 40% federal and state income tax rate.
• $256 billion in profits available for further business investment.

Now let’s assume that enlightened business leaders take half of that $256 billion of profit and hire workers to help them develop new offerings and provide more valuable service to their ideal customers going forward.  We can expect 2. 5 million in new jobs from investing $128 billion of $256 billion in additional profits.  This calculation assumes a modest $50,000 pay and benefit package.

There’s one more factor to consider – the velocity of money.  When the Federal Reserve is trying to figure out how much money to allow into the system they consider the fact that every dollar in the system typically creates $7.00 of revenues throughout the system.  So when you hire me to coach you on how to get higher prices, I’ll take that money and buy groceries.  The grocery store buys their products from food distributors, who buy them from food producers, who buy seeds, fertilizer and equipment.  You get the picture.

While the velocity of money does vary, it typically hovers around 7.  Given the pent up demand that the recession created, I think it’s reasonable to assume that we can expect the velocity of money to be 7 in the near future.

With that in mind, the $128 billion invested in hiring people will generate $896 billion in new spending which means new revenues for companies.  If we assume that a quarter of that $896 billion ($224 billion) gets invested in hiring, that would add 4.5 million in new jobs assuming the same $50,000 pay and benefit package.

Between the 2.5 million of jobs created with the 3% price increase and 4.5 million of new jobs created through the velocity of money we’d cut our current unemployment in half and generate billions in additional tax revenues instead of adding billions to the deficit in failed attempts to “stimulate” the economy.

It’s counter-intuitive, but a modest price increase can be more effective in accelerating the economy than any government program envisioned.

Break the bonds of industry pricing, call Dale at 314-707-3771.

Tags: counter-intuitive pricing, price management, Pricing, pricing for profit, pricing for profitability, pricing management, pricing strategies, pricing strategy

This entry was posted on Tuesday, February 9th, 2010 at 6:00 am and is filed under Marketing, Pricing, Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.