Set and raise prices 2 of 10 in this group
SOP 77
Run the ten pricing plays that add profit now
What this page is for. Use it for more profit from the customers you already have, with little change to sales. Of ten small pricing changes, four have their own pages and are summarized here; six are carried in full, each in its own section below.
SOP-77-Run-the-ten-pricing-plays-that-add-profit-now.md
1. Why small price changes move profit
Data from 512 companies suggested that improving pricing by 1 percent raises profit twice as efficiently as improving retention and nearly four times as efficiently as improving acquisition (roughly four times, by another figure). So start with price.
A few years ago, a restaurant menu added a 4 percent processing fee at checkout. At the average single-location restaurant's margins, 3 to 15 percent, take 9: on $1,000,000 a year, profit is $90,000. The fee adds $40,000, revenue becomes $1,040,000 and profit $130,000, a 44 percent rise, for new menus and one line at checkout.
Raise price 10 percent at 10 percent margins and profit doubles; the average U.S. small business ran 7 to 10 percent net margins in 2024. The lifts below total 26.8 to 63.8 percent, as estimates, so 63.8 percent could mean six times the profit or more. Add 26.8 percent to $1,000,000 at 9 percent margins: revenue $1,268,000, profit from $90,000 to $358,000, about four times. Each play is chosen to barely touch sales; bigger plays needing more work, change or risk are left out. Some of these will fit your business and some of them will not. You only need one.
2. The ten plays
| # | Play | Lift given in the ten-play list | Where it lives |
|---|---|---|---|
| 1 | Bill every 28 days instead of monthly | 8.3% | SOP 78 |
| 2 | A card fee, waived for a second form of payment | 3-4% | SOP 78 |
| 3 | Sales tax on top | 0% - 10% | Section 4 |
| 4 | An annual price increase in the contract | 3% - 10% | SOP 79 |
| 5 | Longer billing periods: annual and quarterly | 10-15% | Section 5 |
| 6 | Round prices up | 1-3% | Section 6 |
| 7 | An annual renewal fee on top of monthly | 10% | Section 7 |
| 8 | Continuity that starts automatically | 10% | Section 8 |
| 9 | An ultra-high-priced option | 10-15% | Section 9 |
| 10 | A priced guarantee or warranty | 5 - 20% | SOP 80 |
| Total | 26.8% - 63.8% |
Flag: the total. The rows add up to 60.3 percent at the low ends and 105.3 at the high ends, not 26.8 to 63.8; rows that differ from their sections are flagged there. This page does not settle which reading is right.
3. The plays with their own pages
- Billing every 28 days: 13 billings a year instead of 12, 8.3 percent more revenue, same conversion. SOP 78.
- A card fee traded for a second form of payment: the fee, or a backup payment that cuts churn from failed cards. Also SOP 78.
- An annual price increase: a fixed yearly rise in new contracts, from 5 to 15 percent. SOP 79.
- A priced guarantee or warranty: sold after the customer agrees to buy, at 5 to 30 percent of the price. SOP 80.
4. Charge sales tax on top
Background. A marketer quoted $25,000 a month and invoiced $27,000: his province charged 8 percent sales tax, $25,000 times 1.08. He did not cover taxes; his price was what he kept.
Why. Sales tax comes off the top line: at 20 percent margins, paying 5 percent sales tax for your customers gives away 25 percent of profit. Services are taxed differently by state, and 78 percent of businesses are said to be service businesses; look up yours.
The rules as stated. If you are not charged a tax, you cannot charge it. If you are, you could easily recover it. Owners fear saying plus tax, yet nobody minds when a restaurant adds it; it will rarely affect sales but will affect the bottom line. Or incorporate in a state without sales tax, keeping the same share of profit without passing it on; it takes administration, and you check with lawyers first.
Steps, where your state or country taxes what you sell: 1. Agree the price. 2. On the invoice or at the point of sale, cite the tax code that makes the service taxable (the example: 6 percent on personal services, code number a placeholder), dry, almost as if they already knew. 3. Show the tax as its own line before the total. 4. If they object, be angrier about the tax than they are; none of it stays with you. On a menu, add a footer: all prices subject to sales tax and a further 4 percent processing fee. Reincorporate somewhere friendlier to tax, or make the change.
5. Offer billing once a year
Background. Data from a pricing-and-churn analytics company, 14,000 active memberships across industries:
| Billing | Monthly churn | Price | Lifetime value | Gain against monthly |
|---|---|---|---|---|
| Once a year | 2% | $100 | $5,000 | 5.35x |
| Four times a year | 5% | $100 | $2,000 | 2.14x |
| Twelve times a year | 10.7% | $100 | $935 | 0 |
The less often you bill, the less churn, the data suggests, in line with the move from weekly to 28-day billing. You could 5x lifetime value by getting customers to pay annually, but you often sell fewer at twelve times the monthly price. Whether conversion drops five times is not known; test it.
Keeping conversion. Sell a short program first, six to twelve weeks, then upsell into prepaying a year; it works so long as you deliver well in those weeks. In one owner's companies, with a 16 percent discount for annual (buy 10 months, get 2 free) and the sale on a page, 10 to 15 percent choose annual; made the default, 30 percent; over the phone, 35 to 40 percent, depending on spending power in your market. For website checkouts in general, 10 to 20 percent is given; see SOP 76, section 5. With 30 percent prepaying $1,000 and the rest paying $100, the average first transaction becomes $370.
| Monthly rate | Billing | Monthly churn | Lifetime value |
|---|---|---|---|
| $100 | $1,200 a year | 2% | $5,000 |
| $83 | $1,000 a year (-16%) | 2% | $4,150 |
| $100 | $300 a quarter | 5% | $2,000 |
Steps. This does not necessarily mean offering only this cadence, which is advanced; offering either option with an incentive, either a discount or bonuses for prepaying, makes more money:
- Add it to your pricing options.
- Offer the full price, $1,200, first, assuming a year's term.
- Ask whether they would like a discount.
- If they say yes, offer the prepaid discount: 17 percent off.
- If they say no, you could offer 8 percent off for prepaying the quarter: at $100 a month, $275 rather than $300, a $25 saving.
- If they still say no, offer the standard monthly price with no discount.
Start with the highest number, since the first one said anchors the conversation, then discount more for longer prepayment, so prepaying reads as a benefit, not monthly as a penalty. It risks nothing: you can always revert.
Flag: the discount and the quarter. The annual discount is 16 percent in the worked figures and 17 percent in the steps. A second view prices the annual plan at what the average monthly customer pays over a whole stay: in its example, $99 a month at about 12 percent monthly churn is about eight months, so $800, roughly a third off twelve months at $1,188. 8 percent of $300 is $24, not $25. The monthly row's gain is given as 0; against itself it is 1x. The ten-play list gives 10 to 15 percent against up to 5.35 times the lifetime value. This page does not settle which reading is right.
6. Round prices up
Background. Running gyms on weekly billing, 10 percent of members paused every week. A cashier asking shoppers to add a little for a charity prompted rounding up every price. Prices ended in .00, most in 7; adding .99 and turning 7s into 9s seemed to bother nobody, and across thousands of transactions a year it added up.
Worked. Three tiers at the time, for two, three and four days a week, billed weekly:
| Old price | New price | Old a year | New a year | Difference |
|---|---|---|---|---|
| $47 a week | $49 a week | $2,444 | $2,548 | $104 (+4.25%) |
| $37 a week | $39 a week | $1,924 | $2,028 | $104 (+5.4%) |
| $27 a week | $29 a week | $1,404 | $1,508 | $104 (+7.4%) |
| $47 a week | $49.99 a week | $2,444 | $2,599 | $155.48 (+6.36%) |
| $37 a week | $39.99 a week | $1,924 | $2,079 | $155.48 (+8.1%) |
| $27 a week | $29.99 a week | $1,404 | $1,559 | $155.48 (+11.1%) |
The 9s added $104 a client a year, 4.25 to 7.4 percent, with no fall in closing rate; the .99, $155.48, 6.36 to 11.1 percent depending on the price, and conversion did not change. The average gym runs 12.5 percent net margins, so that can nearly double profit.
Where not to. Luxury goods often end on a round number, typically 0 or 5, because their buyers do not want a deal. Premium is not luxury: premium prices reflect the product, so .99 and 9s still work there. Test it; sometimes shorter numbers do better, though there is more room than you think, offered as experience rather than as a rule. It may not sound like much: it added $50,000 a year.
Steps. Change 7s to 9s. Add .99 to all fees. Change contracts for new customers at once.
Flag: rounding. The pauses are given as every week and as every month. The background above adds .99 first and 9s second; the worked figures do 9s first. The ten-play list gives 1 to 3 percent; the worked figures give 4.25 to 11.1. This page does not settle which reading is right.
7. Add an annual renewal fee on top of monthly
Background. An owner who sold a tanning chain to a gym chain learned from its owners that people care about the monthly price and rarely consider the annual one: $468 a year sent them away, $39 a month sounded affordable. So members signed yearly contracts carrying three charges: a start-up fee, a monthly rate and an annual renewal fee:
| Fees | A year | Effective monthly rate |
|---|---|---|
| $39 x 12 | $468 | $39 |
| $39 x 12 + $99 x 1 | $567 | $47 (+20%) |
Advertised at $39 a month, each paid $567 a year, $47 a month in effect: a 20 percent lift.
Where it fits. If you can bill annually, do it; in more price-conscious markets a fee on top of the monthly rate lifts annual revenue without hurting conversion, and this is where the play is strongest. Charge it on the signing anniversary or the day they sign. The fee divided by 12, added to the monthly rate, is the effective price. With both a set-up fee and a renewal fee, you can waive one to win the other.
Steps. 1. Pick a renewal fee of 1 to 3 times the monthly rate: 0.5x adds 4.15 percent of revenue, 1x 8.3, 2x 16.6, 3x 24.9. Provided sales do not drop, you made money. 2. Give a reason that helps the customer: the fee buys rate protection from your price changes, or lets them go month to month after the first 12 months with no cancellation fee. If they object, drop it, and they lose the benefit. 3. Put the rate and the fee in the contract, each initialed, and call it rate protection or cancellation fee prepayment. Nervous about it? It can always be waived as a gift to win the signature. A 10 to 20 percent lift with no drop in sales is profit.
Flag: the renewal figures. $99 on $468 is 21 percent, given as 20, and $567 a year is $47.25 a month. The steps say 1 to 3 times the monthly rate and then work 0.5 times. The ten-play list gives 10 percent; the steps give 4.15 to 24.9. This page does not settle which reading is right.
8. Roll buyers into continuity automatically
Background. An education seller at $5,000,000 a year said one contract line had earned him $750,000: instead of lifetime access he sold a year that rolled into $99 a month, agreed up front, with no effect on sales. Tried afterwards in a different business, it earned $150,000 a month in profit.
How. Make a pared-down, no-work version of what you sell, priced at 5 to 20 percent of the main thing, attached to the end of every front-end sale. It looks small beside what they paid, and they might as well pay 5 to 10 percent to keep it. You build a pool of low-ticket customers to market to, move up or collect from.
The arithmetic: a $2,000-a-month service kept 4 months at 70 percent gross margin is worth $5,600. Add continuity at $200 a month, 10 percent of the rate, at 90 percent gross margin, kept 20 months, taken by 50 percent: $1,800 more, $5,600 to $7,400, a 32 percent rise. Depending on your margins, the profit rise could be 25 to 100 percent.
Do not hide it. Customers agree up front, and you say clearly what happens after the period. People like knowing a cheaper version waits at the end, offered as experience rather than as a rule.
What to sell. Continued, technical or priority support, price protection, continued or community access, insurance or a warranty, or any small, cheap-to-keep feature people need: a very high-margin version that becomes the default and recurs.
Steps. 1. List every front-end product. 2. Find the features with value that cost little to deliver. 3. Price at 5 to 20 percent of normal. 4. Attach it to every front-end purchase; they earn that rate only after a set period, which helps them stay. 5. Collect the profit and keep marketing to them. For one-time sales, start the continuity after a fixed period.
Flag: the continuity figures. The price is 5 to 20 percent in the steps and 5 to 10 percent in the sunk-cost line. The ten-play list gives 10 percent; the arithmetic above gives 32 percent more lifetime value. This page does not settle which reading is right.
9. Add an ultra-high-priced option
Background. At a tailor, the first suit shown was $16,000; the $2,000 one that followed was a relief, to a buyer who had meant to spend no more than $500.
How. Add a top version at ten times or more your core offer's price, anything you are glad to deliver. With a $500 main product taken by 80 percent and a $200 downsell by 20 percent, lifetime value is $440. Add a $5,000 option taken by 10 percent, with 70 percent on the $500 and 20 percent on the $200, and it is $890. You will often close more on the $500 product too, because it now looks affordable.
Steps. Offer first the most extreme version, at a price you would gladly do it for; it is probably best for them if they can afford it, and if not, find them the main offer. One seller's top product took over almost overnight and is now all that seller sells, worth millions a year. If selling it makes you tense, keep lifting the price until a sale makes you smile.
Flag: the anchor's lift. The ten-play list gives 10 to 15 percent; the worked case more than doubles lifetime value, $440 to $890. This page does not settle which reading is right.
10. Choosing
Pick the one or two that could do the most for your business for the least work and risk. Changing prices takes nerve.
11. What this page does not decide for you
- Which play. None is ranked; the lifts are estimates.
- The legal position on sales tax and fees. The tax rules above are carried as stated.
- Your conversion at the new price. This page gives no figure for it; test each change.
12. What this page does not cover
Testing a price, its step size and how often to move it are on SOP 128. The expensive version shown first as an upsell is SOP 68; pricing continuity is SOP 74; the pricing rules and the three pricing models are SOP 82.
Sales-tax, incorporation, subscription auto-renewal and card-surcharge rules are not covered on this page.
Terms defined on this page
- Continuity that starts automatically
- A stripped-down, low-cost version of what you sell, priced at a fraction of the main product and agreed at the start, that begins on its own once the front-end period ends.
- Ten pricing plays
- Ten small price changes that barely touch sales: 28-day billing, a card fee waived for a second payment, sales tax on top, a yearly increase, longer billing periods, rounding up, a yearly renewal fee, continuity that starts automatically, an ultra-high option and a paid guarantee.