Warren Buffett, CEO of Berkshire Hathaway, said the single most important decision in evaluating a business is pricing power. With his company’s substantial stakes in Kraft Heinz Company, American Express, Bank of America, The Coca-Cola Company and Apple, plus a personal fortune of US$112.7 billion, Buffett should know what he’s talking about.
It’s no mistake that pricing power is one of the key factors used by investment banks for evaluating publicly traded companies. After all, this particular ‘P’ of the marketing mix is the most important profit driver – more than volume, variable or fixed costs. Ask yourself what would happen to your bottom line if you were able to improve each of these by 5%! Pricing will always come out on top.
Although volume and price are equals for revenue development, the potential for gaining value market share via additional volume is usually limited for an optometry practice, since there are only so many people needing vision correction in your neighbourhood. That makes the task of optimising your profit doubly important. Yet I often experience restrained interest in active price management from small business owners. Some are more interested in the technical aspect of the business, some are afraid of overpricing and losing customers, while others feel they are advocates who have to protect their clients from overly high prices.
