Prices: Are There Several Ideal Margins?

Because not all customers value the same proposal equally or are willing to pay for perceived benefits, sometimes the same product can have multiple ideal margins.

Friday, April 26, 2019

Ariel Baños, price management specialist and founder of Fijaciondeprecios.com, explains how there are myths about the "ideal margin" and what are the ideas to overcome these misperceptions.

One of the myths is that the "ideal margin" is a kind of magical percentage that guarantees adequate profitability. For example, rules like: "in your market you should mark with 50% or multiply by two the purchase cost."

But the customer is indifferent to our cost, is only willing to pay for perceived benefits. A fixed margin applied to cost wastes opportunities to capture value and be more profitable.

Another situation is that those who believe that the "ideal margin" exists, use cost as a starting point and apply a fixed margin (mark-up) depending on the type of product or market.

However, there are multiple "ideal margins", even for the same product. Not all customers are equal, nor do they value the proposal equally. So why define a single price for the entire market?

See full publication in Fijaciondeprecios.com

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Prices: The Myth of the Ideal Margin

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The search for the ideal margin is an aim that keeps a lot of business owners up late at night, but this kind of reasoning does not always help them be more profitable.

In general, those who ask themselves what price they should set for their product, start from an incorrect premise: using the cost as a starting point. 

Setting Prices Based on Costs: A Mistake

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Prices for end customers should be increased according to the perception of value of the product or service, which is not related to production costs.

The myth of the ideal margin
By Ariel Baños
President and founder of FIJACIONDEPRECIOS.COM

The search for the ideal margin is a goal for most companies. However, this reasoning does not help them be more profitable.

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fijaciondeprecios.com

Organization that operates in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
Phone: (0341) 156022290

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