Posted by In the previous post I wrote I started an example showing why it is better to sell more expensive and less than cheaper and more. Today we will count this example to the end. I also wrote that supply is to offer a good on the market. This is a really important dish that I will return to at some point. Today, however, it will be about, in simple terms, how much you are able to produce products or provide services (in terms of number of units) during a given period.
Let’s say the market price is PLN 100 per lesson. So let’s calculate our revenue per month (what is the difference between revenue and income and how to treat these two financial categories in your own business, I will write in future posts):
PLN 100 per lesson x 96 hours of lessons = PLN 9600 in a month.
In other words, providing a service at the market price, you are not able to earn more than 9600 PLN in a month (working for 96 hours teaching lessons). Now consider, what happens if we increase the price per lesson to 120 PLN? Intuition tells us that demand will drop, that is, if you had customers for those 96 hours of lessons so far, now perhaps there will be that demand for 70 lessons. It’s easy to calculate that you’ll save 26 hours in a month (more than 24 hours, and looking at work days – 3 work days, that’s really a lot), but you’ll make me money, because:
PLN 120 per lesson x 70 hours of lessons = PLN 8400 in a month.
Slightly less (1,200 PLN), but you can always use 3 days to work, for example, in some project where you will earn more than 1,200 PLN, and then it will pay you.
What would happen if you raise the price to PLN 160?
Perhaps the number of people willing to buy such a service would drop again, i.e. the demand to 60 hours per month. This means that in a given month you will earn:
PLN 160 per lesson x 60 hours of lessons = PLN 9600 in a month.
Note that we earned the same amount as if we gave 96 hours! And now we only work 60 hours, instead of 96 hours. After all, this situation is much better – we have more time to relax and develop the business, for example, by hiring other teachers.
Of course, it may turn out that the demand will fall more than to 60 hours of lessons and then it will be a bit worse, and there may also be a price at which no one will buy this service! This is true, but the whole way has to start from the other side.
First, we set a high price (much higher than the market price!), check what the demand is, and if its size doesn’t suit us (because it’s too small), we lower the price under the pretext of holidays, holiday promotion, discount for the first customer, etc. We do this until the revenue level (price x number of services sold) satisfies us.
In conclusion, the price is always easy to lower, and rarely easy to raise, so start with a high price!