The Biz of Pacelinebiz

Turning things on end to achieve results!

A lesson learned from… Arby’s?

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Today’s topic will not be long but will make you think, and that is a good thing.  A couple of weeks ago I wrote about the NFL and what could be learned by following their example.  This week I have a lesson to share that I came across completely by accident.

Let me set the scene for you.  I was feverishly turning things on end to achieve results last week and the lovely Mrs. H. and I were faced with a dining dilemma.  Make dinner at home or grab something at a restaurant – fast food or otherwise.  After deliberating for 3 seconds, we decided to go out for fast food as we were pressed for time.  We rolled into the Arby’s parking lot and walked in very unfamiliar with their menu.  We managed to choose our dinner but I stumbled across something that ended up being today’s topic.  The item I ordered was a combo meal and the menu price was $5.01 – yes $5.01.  Well, that got my wheels turning in my head all last week and I could not let it go.

My question to myself was; what happened to 99 cent pricing?  Why was it $5.01 and not $4.99?  Is 99 cent pricing dead?  Shall I hold a funeral?  I can’t believe that the price was set at $5.01 without a reason.  This is the first time I have noticed blatant disregard for 99 cent pricing.  I suspect Arby’s is on to something.  The 99-cent pricing model no longer works.  The psychological difference between an item for $4.99 and $5.01 is no longer present.  They have figured it out that we have figured it out – probably a long time ago.  Now Arby’s is free to set prices at various prices with more flexibility and grow revenues.  They no longer have to make portion sizes match to a price the ends in 99. 

The heart of the issue is that little things can add up to make a big difference. I learned this lesson years ago when I was working in a CPA firm.  The partner in the firm that explained this to me was very successful and shared this with his clients as a way to provide an additional benefit in his relationship with them.  This lesson does not have to be one reserved for fast food restaurants or other retailers.  Why not re-think selling price throughout the business world?  Obviously this works better as sales volume increases but no matter what it is you sell, if you sell 1 million items a few cents can make a big difference – especially if those sales are distributed to many individual customers.  If you have a 3 cent price increase on 1 million units that is an additional $30,000 to the bottom line.  The customer probably will not mind the 3 cents and you certainly do not mind the $30,000 in your bank account. 

I will give one more example that works surprisingly well.  A professional firm with a staff of 20 that typically have 2,000 billable hours per year will bill 40,000 hours per year.  It doesn’t matter if the firm is Accounting, Architecture, Engineering or a Law firm their hourly rates could vary from $50 to $350 per hour.  If you have ever noticed, hourly rates are typically rounded to the nearest dollar.  Would you really notice if your professional consultant had an hourly rate of $85.44 per hour instead of $85.00?  If the price sensitivity is very low in my example then if it were my option, I would prefer to invoice those 40,000 hours at the 44 cent higher rate.  That is an extra $17,600 of sales revenue – 44 cents at a time.  I hope this example will get you thinking about creative ways to get a few extra dollars in your pocket.

Have a great week. I hope you are thinking.

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Written by pacelinebiz

October 4, 2010 at 6:18 pm

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