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Is a 40% price increase really a 40% revenue increase?

While sober, a brilliant mathematician friend of mine once stated, Math can never tell you what something is. It only shows what it should be if your model is correct. And they never are.

Take, for example, a 40% price hike, done without any warning, overnight. Mathematically, it raises revenue by 40%. That is if no clients leave – but that’s a big “if”. If a portion leaves, you could still profit, or not, or lose money, depending on how many leave.

The same 40% increase, if executed correctly, will scare away fewer clients and put you on the “this person is thriving, I better seek their advice” map of others, potentially bringing more than pure math would suggest.

And people

Even from the client’s perspective, it’s far from simple.
To price-conscious clients, 40% might as well be 300%, because they could barely stand the old price. For others, who get massive returns on their value from you, 40% might not be much different from 5%, as they feel working with you is worth it.

In addition, two consecutive 20% increases, month after month, will have different results than a single 40% one, even if they are “the same thing”. You are not selling to robots, and humans have pride, anxiety, resentment, envy, reputation to uphold, and a whole host of other personal biases that will stop them from “simply doing the math”.

For what we do, pricing is 70% psychology, 20%power games, and 10% math.

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