Price x volume – cost = profit.
You already know this. But my question is – how much time do you spend thinking about all three?
Have a think for a second and answer this for yourself before you read on.
Expert opinion suggests that most businesses probably spend 70% of their time working on costs, 20% of their time on growing volumes and 10% of their time on price.
Which is odd given that price has by far the greatest leverage to increase your profits if done using a well thought out pricing strategy.
For example, if you cut your overhead costs by 5% (and assuming all other things being equal), your profits would rise by 5%. But if you were to increase your prices by 5%, the profit increase would be significantly higher than that as all the benefit flows to the bottom line.
So as price, volume and costs are all equally important, I would suggest you should spend about a third of your time working on each one:
Price (33%) Volume (33%) Costs (33%)
So this means a threefold increase in the amount of time you spend on pricing, a 50% increase in the time you spend on volume growth, and a halving (roughly) of the amount of time you spend on costs.
As price has the greatest leverage for increasing profits, and also is the ultimate measure of the value you provide to your customers, it is your best investment for the amount of time you spend working on growing your business.