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, with discounts added at certain quantity thresholds based on how many your customer buys. For example, you’d have a base price of $4 for one item in a customer’s order; if they order five, you might have a price break of $3.50. This way, the more items your customer buys, the lower their overall costs.
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 main advantage of price breaks is that they offer flexibility and affordability to customers who regularly have large orders. While they are paying less per unit, you’re still able to generate strong revenue from each order placed – especially if you have multiple customers who always buy in bulk.
The ultimate question becomes: does your pricing break guarantee higher revenue with larger orders?
Is Your Pricing Matrix Costing You?
Let’s take a look at a poorly conceived pricing break system. 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 noticed, the moment the customer ordered 8 items, you started making less money than you would have if they had just ordered 7. Only at 10 items do we start seeing a return to increased revenues from an order of 7.
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 your costs increase, 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 at a cheaper rate, but comes with the risk of wastage or buying less and paying more.
None of these are are deal breakers since these are accepted practices in the industry. Having said that, though, there is a newer and better alternative to traditional price breaks.
What is Breakless Pricing?
It’s a simple concept: every t-shirt is now a price break. Let’s take the example above and convert it into a breakless pricing structure. We know the price for one item is $4.00, while 8 items would cost $3.00.
Benefits of 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 better alternative. More and more shops are realizing the potential of breakless pricing and have opted to make good use of it. To help shops like yours with this process, we’ve even 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.