How to Set Prices with the 'Jump 50' Technique

One of the age-old questions for just about every business is how to price the products and services being offered. If the price is too high, sales suffer. If the price is too low, profitability suffers.

Author Mike Michalowicz thinks there’s a better way than just guessing.

“Most people simply try to reduce their prices as much as possible just to attract clients, but then they suffer when it comes to profitability. Others put their prices so high that they can never land a client in the first place,” he noted in a recent Nextiva video. “So what’s the right spot?”

Michalowicz suggests experimenting for data that will help define what price point the market can support. He advocates a method called Jump 50.

“When you do your proposal, pick your best price point that you guess. See if you land clients. If you’re landing clients, you can do the Jump 50. If you’re not landing clients, you are going to have to reduce the price,” he said in the video.

If the proposal does land clients, experiment a little by raising the price by 50 percent.

Yes, 50 percent.

“For example, if your price is at $10, change it now to $15. Then measure the market’s response to that.”

If the increase causes sales to go down too far, you know the new price is too high. But you might be surprised that sales stay the same or even increase (perceived value).

If sales are still strong with the 50 percent increase, do it again—increase the price by another 50 percent.

“You add now $7.50—the price is $22.50—and see what the response is in the market. Go to the highest price point you can get where you get the most conversion rate. Brings profitability to you, and it brings clients to you,” he said.

If customers are not responding at a given price point, try the opposite—lower it by 50 percent and see how much sales improve.

“Of course, only if you can afford to do this,” he cautioned.

“No matter where you end up, if you continue to land the same number of customers, do a Jump 50,” he added.

Whether your company offers business VoIP, virtual PBX, software, or another type of service, the only way to discover the right price point is through experimentation. The Jump 50 method helps you get there.

Edited by Alisen Downey