Typical – Pricing

CalculatorWith my abundance of spare time lately, I have been picking up some of the books I have on a variety of business topics. Books that I have skimmed or have done some spear fishing for in the past when I needed to quickly get up to speed.

As one of the core tasks of product management, pricing has always been somewhat of a challenge. Not the act of setting prices, although at some places I have been, that can be quite cumbersome, the hurdles and barriers put in place. No, the challenge is more on how to determine the reference price, and what “value” your differentiation brings to the plate and how to put a price on that.

One of the chapters in the book I am reading “The Strategy and Tactics of Pricing” is on the financial analysis around pricing. Cool, I have a degree in physics, and I love love mathematics. Right up my alley. So the big example is to calculate a break even table and graph for what happens when you reduce the price.

Conceptually, it is simple, you figure out the variable costs per unit, the number of units, calculate the contribution margin, and then figure out how many more units you need to sell so that your price reduction is profitable.

Me, being a physicist, mathematics geek, I look at how to make it more difficult than it is. I am building elaborate excel spreadsheets, doing regression analysis, and not quite getting it.

Then I go old school. I get pencil and paper out, my trusty HP-41C out and manually do the math.

Damn, I was making it far more difficult than it needed to be. It wasn’t even requiring algebra to get answers.

Curse my geek-y side.