Is your pricing matrix done correctly? Mark Coudray, a strategist in the print industry, thinks this might not be the case. He talks about what’s wrong with pricing matrices and how if you’re not careful, taking on more orders makes you less money. What does he mean exactly? Let’s get a good view of this idea and see how it is true by comparing traditional price breaks and breakless pricing.
What is a price break
A price break results when you set a price based on the quantity bought, and this will trigger a discount based on each garment your customer buys at that quantity.
The process of creating a price break would look something like this:
- Find out the cost of producing decorated goods. This should include the cost raw material, labor, insurance and any sunk / variable costs.
- Decide the range of desired markup / margin for the products. You can learn more about markups & margins here.
- Decide the price breaks and create a pricing matrix.
The ultimate questions, does your pricing break guarantees, more revenue the higher the order?
Your pricing matrix may be costing you
Let’s take a look at poorly conceived pricing break. In this example, we have $4 for 1-7 items and $3 for 8-14 items.
|1 – 7||$4.00|
Now, let’s see the total revenue at each shirt sold.
As you may have already spotted, the moment the customer ordered 8 quantity, you started making less money than you would have if they had just ordered 7. Only at quantity 10 do we start seeing increased revenue.
Disadvantages of traditional price breaks
Event when you have setup your pricing breaks correctly to ensure profitability, you still run into the following disadvantages.
- When you cost goes up, you will need to redo the entire pricing matrix and you may even need to come up with new pricing breaks
- Your customer is given the burden of choice between buying more for a cheaper rate but at the risk of wastage or buying less and paying more.
None of these are are deal breakers since this is the accepted practices in the industry. Having said that, there is a newer and better alternative to traditional price breaks.
Breakless Pricing: What is it and how do we create one?
It’s a simple concept. Every t-shirt is a price break. Let’s convert the example above into a breakless pricing. We know at quantity 1 the price is $4.00 and at quantity 8 the price is $3.00.
Benefits of using Breakless Pricing
- It’s simpler for you. You can use a spreadsheet or software to create a pricing matrix guaranteed to generate profit at any quantity.
- It’s simpler for your customer. Your customer knows that whatever quantity they are buying, they are getting the best price for that quantity.
We’ve covered some flaws in traditional pricing breaks in this article and how breakless pricing is a good alternative. More and more shops are realizing this has opted to use breakless pricing instead of your traditional price break. To help shops with this process, we’ve created a free tool that can generate the matrix for you. If you have feedback on how we can improve the tool, please send an email to firstname.lastname@example.org.