Your best price bringing you best revenue
Price testing is about finding the best price for your products and services bringing you maximal revenues.
Do you think you charge the right price for you services? Have you ever suffered from the feeling you charge too little for your work? Or maybe you’re worried you charge too much and scare customers away?
There is one way to put an end to your doubts – TESTING! Yes, this final part of Conversion Rate Optimization can basically be applied to every situation where you do not know the exact answer. Testing samples big enough for a long enough time period ensures clear results and conclusions.
Good pricing requires knowing your target audience, a lot of time and experience in your sector, and a developed intuition about which prices would work well. It is also about knowing the competition. It is about constant control and market overview because conditions change on the long run – and so do prices.
Low prices can imply high revenues due to large amounts of goods sold. The same revenues may be achieved with fewer units sold at a higher price. And sometimes middle-priced goods and services sell best. It is all about finding the best combination and compromise between revenue and number of new customers. On the long term it may be more worthwhile to obtain more new customers.
Can you imagine that a cheaper product can bring fewer sales than the exact same product with a higher price?
Even if it sounds ridiculous, it happens! This phenomenon is known as reassuringly expensive products. This is when people have to spend more for a product or service and they consider it of better quality (even if the other product is cheaper and has exactly same characteristics). They even feel good and happy about having paid more! The reason is that price affects to an extent people’s perception of product value. The high price provides them higher value, thus making them feel better and maybe even giving them further reassurance. A lower price may have the opposite effect.
How does price testing work?
Our client S. wondered for a long time if he could perform better and sell more on his website. He had 200.000 visits monthly and ca. 2,5% of them converted, bringing revenues of € 220.000. The average amount spent per order was € 44. He decided to contact Conversion Rockers for a short consultation. After describing his business model in detail and giving information about his target audience, a new model was created for S.
Three different prices were chosen for a cool designer t-shirt – € 21,95, € 32,90, and € 54. After that the website traffic to the product page was split in three equal parts, each of them seeing one of the above defined prices. After three weeks of testing we had the following results:
|Price||€ 21,95||€ 32,90||€ 54|
|Revenue||€ 4.016,85||€ 7.303,80||€ 8.100|
It appeared that the middle-priced t-shirt for € 32,90 generated significantly more sales. Obviously the one for € 21,95 was perceived as a low quality or low value, and the one for € 54 was perceived as too expensive. The highest total revenue was achieved through the € 54 t-shirt. However this was only because of the big price difference.
This example demonstrates the effects of the middle and high prices in order to compare their advantages. The higher price resulted in higher revenue, a one-off additional revenue of € 796,20. Rapid first sale success. At the same time the middle price brought 72 additional new customers. In the long run they may bring more revenue through their subsequent purchases. Therefore it is necessary to find the right balance. Often it is worth to charge less today in order to earn more in the future.
This was also S.’s choice. He slightly decreased the prices of many products. The average amount spent per order went down to € 37 (€ 6 less than before). However, in the following months he noted 30% more purchases and customer registrations. He was able to gain more happy and loyal customers, who purchased more often than before. This way the revenue of S.’s website reached € 240.500 monthly.
It’s like a game.
We are convinced price testing is valuable because it can reveal unexpected business potential. It helps to know your customers, to understand their values, what they would like and what they would never pay for. It is through tweaking and fine-tuning that we discover the best option. It combines human psychology, probability theories, comparing alternatives, and always searching for the right balance.
Conversion Rockers have helped web businesses increase the number of loyal clients and thus their revenues by between 7% and 60%. If you want to participate at this exciting game and also find a place in the heart of more of your customers, we would love to help you. Find out more about how to work with us here